Whole Life Insurance
Guaranteed Benefits
Designed to cover you through your entire lifetime, Whole Life builds cash value on a tax-deferred basis. The cash value can be accessed by the policy owner for emergencies, extra income, or college expenses, with any amount withdrawn and not repaid deducted from the policy's death benefit. Whole Life can include dividends which can increase the value of the policy or increase the death benefit to the insured's beneficiary.
Reasons to consider Whole Life Insurance
Guaranteed
The premium you pay, the death benefit, and the cash value is guaranteed. Although it might seem more expensive at the outset, you also have to remember that inflation rises over time, which in effect decreases the cost of your premiums over the life of the policy.
Available Cash
You can borrow against the cash value as an added convenience, or access the entire accumulated cash value should you cancel your policy at any time.
Dividends Option
Although not guaranteed, some companies offer dividends to policy holders. Dividends can increase the value of the policy or increase the death benefit to the insured's beneficiary.
Riders
Riders can be used to enhance to customize the policy to fit the client such as accidental Death Benefit, Disability Income, Child Term Rider and more.
Tax Advantage
Cash value grows tax-deferred
Limitations
Premiums
Whole life insurance generally has higher premiums than term life insurance, at least while the insured is young
Complexity
Whole life is more complex than term insurance
Cash Value
The growth of whole life cash value, while guaranteed and predictable, may be less than the growth of investments which lack such a guarantee
Common uses for Whole Life Insurance
Income Replacement
Can provide a few years of income replacement for families in their prime earning years.
Children's Education
Can provide a safety net should something happen to you while you’re saving for your child’s college education. The cash value in a permanent life policy can also be used to fund children's education.
Divorce Settlement
Can be used to satisfy requirements related to divorce, ensuring that alimony and child support can be maintained.
Business Insurance
A lot of big businesses fund executive compensation plans with cash value life insurance policy. It cuts through a lot of red tape and administrative issues that other plans carry.
Advanced Estate Planning
There are situations when an estate may require life insurance for liquidity or estate tax purposes, and depending on the setup, it may be advantageous if the policy is a cash value plan.
Collateral Assignment
A cash value policy can be used to secure loans by the use of the accumulated cash as well as the death benefit coverage amount. Some form of life insurance is generally required for many types of bank loans.
Retirement Income
The use of Arbitrage can be a great advantage. When you withdraw money from your brokerage account or 401k and spend it, the money is no longer invested and working for you. But with cash value policy, when you borrow from your policy for retirement income, the insurer is lending you money and using the cash value in your policy as collateral for the loan. This means that you could continue earning interest on the money you took out to live on enough to cover the loan interest.
Creditor Protection
Some state laws dictate that the cash value in your life insurance is protected from creditors. This is a very important feature for people in the medical profession and business owners alike. Money held in your bank account or brokerage account is generally not protected from creditors and law suits.