Whole life insurance is a permanent life insurance policy that typically lasts throughout the insured person’s life or until they choose to cash in the policy. The policy remains active for the chosen term as long as the premiums are paid and the policy is in good standing.
What is whole life insurance?
A whole life insurance policy is generally made up of two components, a term life insurance component and an investment component. The term policy component is only life insurance coverage and may be typically bought for a term of one to thirty years. With a term policy, the death benefit amount is paid to the beneficiary after the policyholder dies. The investment component of a whole life insurance policy may be invested in stocks, bonds, or money-market instruments. The investment portion of a whole life insurance policy accrues in cash value over the term of the policy. The policyholder may typically borrow against the cash value of the policy if they would like.
How much will a whole life insurance policy cost me?
With whole life insurance policies, you can typically lock in your monthly premium so it remains the same for the term of the policy. However, the premium rates for whole life insurance policies can be costly because you are paying for the life insurance death benefit portion as well as the cash value investment portion of the policy.
Is whole life insurance a good investment?
Life insurance is meant as coverage, not as an investment tool. However, there are benefits to owning a whole life insurance policy.
- You are guaranteed a return on your investment with a whole life insurance policy. If you allow cash value component of the policy time to grow before borrowing from it or cashing it out, you are guaranteed to earn money on that portion of your policy. Because the stock market is variable, how much you will earn cannot be predicted, but you will not lose money on your policy.
- The growth in value on a life insurance policy is tax deferred. Therefore, you will not pay taxes on your policy while it is accruing value.
- You may choose to borrow or liquidate the cash value portion of your policy while you are alive.
- Whole life insurance policies are sometimes used in estate planning. You may choose to leave the cash value component of your policy to your beneficiaries. The cash value may be used by your heirs to pay any estate taxes or other fees related to your estate after you die.
Consider your coverage needs when shopping around for a life insurance policy. If you and your beneficiaries would benefit from having both a death benefit and cash value component as is found in a whole life insurance policy, then it may be a good option for you.
Kathy Kara is a writer for a variety of sites, including BestLifeInsuranceDeals.com.
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