Whole Life Insurance Explained
Whole life insurance features a level premium and level death benefit to age
100 with an accumulating cash value that increases over time until it equals
the set death benefit. Whole Life Insurance covers you for as long as you
live, if the premiums are paid. Whole Life Insurance pays a death benefit to
the beneficiary you name and offers you a cash value account and tax-
deferred cash accumulation. The policy remains in force during your entire
lifetime and provides permanent protection for your dependents while
building a cash value account. The insurance company manages your policy's
cash accounts.
Cash value is an amount of money that you are guaranteed to receive in the
event of policy cancellation. Your premiums are invested on behalf of the
policy, generating the build-up of the cash value. Over time, your premiums
grow like any other investment and the rate of return (yield) can vary from
company to company. You also have the right to borrow against the
accumulated cash value for whatever reason you choose – to make purchases,
cover expenses or to apply towards the premium itself (in effect paying for
itself).
When you first take out the policy, premiums may be higher than you would
pay initially for the same amount of term insurance. They will be smaller
than the premiums you will eventually pay if you were to renew a term policy
until your later years.
Whole life is suitable for long-term obligations, such as surviving spouse
lifetime income needs, estate liquidity, death taxes, funding retirement
needs, etc. Whole life also provides a good cornerstone for a complete
protection package for your family and your assets.
Pros:
Whole Life Insurance has a savings element (cash value) which is tax-
deferred. You can borrow from or cash in the policy during your lifetime. It
has a fixed premium which can't increase during your lifetime (as long as
you pay the planned amount) and your premium is invested for you long-term.
Cons:
Whole Life Insurance does not allow you to invest in separate accounts, i.e.
money market, stock, and bond funds. Does not allow you to split your money
among different accounts or to move your money between accounts and allows
no premium flexibility nor face amount flexibility.
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