What is Whole Life Insurance?
Whole life insurance is a permanent life insurance product that is designed to provide coverage for life.
How Does Whole Life Insurance Work?
Generally, whole life insurance is purchased by people looking to have permanent coverage without having to requalify every 10 or 20 years.
This helps guarantee that money will be left to a loved one no matter what age.
Either to pay for any final expenses or to pass money to the next generation.
Whole life insurance generally has level premiums.
Meaning that the required premiums will stay the same for the selected payment period.
Here is an example:
Shawna is 40 years old with a preferred health rating.
She purchased a $100,000 whole life insurance policy for $100 a month.
The monthly premiums are level to age 100.
If she continued to live past age 100 the premiums would no longer be required but she would still have coverage.
There are some premium paying periods that are designed to end in as little as 10 years or until you reach age 65.
Again, with whole life, even though your payment period ends in 10 years you would still have permanent coverage for life.
One drawback could be the higher cost of insurance.
As my example shows, a $100,000 whole life policy could cost around $100 a month.
In comparison, that same person could purchase $100,000 in term life insurance and the monthly premium would be around $10 a month.
So in comparison is it worth it?
That really depends on your goals and what you want your insurance to do.
See, if your goal is to have permanent insurance that never ends with a guaranteed payment period than whole life insurance is a great option.
In addition, there are other benefits as to why you would pay more for a whole life insurance policy.
One is the cash value accumulation inside of the plan.
Cash Value Accumulation
To keep things simple, generally, a whole life insurance policy accumulates cash value through the issuing of dividends.
In my opinion, the easiest way to understand insurance dividends is to think of the insurance company sharing their profit with you after paying all of their bills.
Once your policy receives a dividend generally your cash value will grow.
Now, there are different dividend options inside of a whole life insurance policy.
You can use the dividends to increase your cash value, purchase more insurance, or even pay your premium.
The majority of people select to increase their cash value as you can always access the cash surrender value later down the road.
Most insurance companies even use this as a strategy to position an alternative tax-efficient retirement plan.
Some insurance companies even advertise an internal rate of return of 4% to 6% growth on your cash value.
This highlight is used to entice higher premiums into whole life policies versus tradition retirement accounts.
Whole life insurance also has a tax-deferred growth aspect.
Based on the IRS code, the cash value inside of a whole life insurance policy can grow on a tax-deferred basis.
Meaning that you would not have to pay income tax each year on the cash value growth.
This benefit is a major highlight for people when purchasing a whole life policy.
Another benefit is the income tax-free access through policy loans.
Income Tax-Free Access
When it comes to accessing your whole life cash value the most popular way is through loans.
This strategy is used to illustrate a tax-free stream of income.
See, you are NOT truly accessing your cash value inside of the policy.
If you were the insurance company would have to send you a 1099 and you would have to pay income tax.
Instead the insurance company “loans” you the money from their account using your policy as collateral.
However, the insurance company does charge you an interest rate, anywhere from 5% to 8% depending on the company.
But you do not have to pay the interest today out of your pocket.
Generally, the insurance company will collect the interest when you pass away.
See the idea is that the insurance company will loan you the money, charge you interest, and then minus the loan plus interest from the death benefit when you die.
This is a great workaround to growing wealth on a tax-deferred basis and then accessing your growth income tax-free.
So to wrap up, please take this into consideration when thinking about purchasing a whole life insurance policy.
Yes, the cost of insurance is more than a term product but could bring you more value.
Your goals and financial situation should be the judge on if this is an ideal product for you.
I know this might be confusing but please don’t worry.
We are here for you and can answer any questions you might have.
We can also help you search the market for the best whole life options and compare them to other products for the best value.
For an in-depth review of your current policies or if you have additional questions about whole life Insurance please click here for a FREE insurance review.
Whole Life Highlights
- Permanent coverage for life
- Tax-deferred cash value growth
- Multiple dividends options
- Access cash surrender value on an income tax-free basis through policy loans
- Specific premium payment period
Ohio National is the most popular non-living benefits whole life insurance company chosen by our clients.
They have very competitive whole life rates with multiple whole life products and options for different budgets.
And when it comes to paying claims they are among the industry leaders in turnaround time.
To compare your policy to Ohio National or the market for the best value please click here to schedule a FREE insurance review.
National Life Group is the most popular whole life insurance company chosen by our clients. Their built-in living benefits and competitive rates separate them from the pack. They provide industry-leading service, pay claims fast, and have an expedited application and underwriting process to get clients approved quickly.
These are just some of the reasons why National Life Group is our most popular whole life insurance company chosen. To compare your policy to National Life or the market for the best value please click here to schedule a FREE insurance review.