Let’s talk Whole Life Insurance.
Life insurance isn’t a one-size fits all kind of thing. There are a ton of different kinds of policies. And you want to make sure you get the one that’s right for you and your family.
In this article, we’ll cover one of the more common types of life insurance… whole life insurance. Let’s start at the beginning…
What is Whole Life Insurance?
Whole Life Insurance falls under the “permanent” life insurance banner. It’s a policy meant to provide you coverage for your entire life.
Whole life insurance pays out a “death benefit”. This means that, upon the policy holder’s death, the insurance will provide a payout for your beneficiaries.
A whole life insurance also has a savings component. This component accumulates a cash value which is supposed to build up for as long as your policy lasts. This is one of the most important elements of a whole life insurance.
Your monthly premium depends a lot on how much of a death benefit and savings component you sign up for. And that premium doesn’t change over the course of the policy.
How Does It Work?
While life insurance policies are both insurance and an investment. More specifically, this type of policy gives you a guaranteed return on your investment.
Now, the premium you pay every month will be split by the insurance company. One part of your premium will go to the cash value account and the other covers the actual life insurance.
The first half of the premium is where insurance companies invest your money so it can bring back returns, thus, building your “cash value.”
In the first few years of your policy, a larger percentage will go to the cash value. As years progress, you age, and so does your insurance policy. This means that in the latter years, the insurance company will put more of your monthly premium towards your policy because the cost of insurance increases as you age.
Over time, your cash value will grow, it will not decrease in value unless you decide to borrow from the fund. However, insurance companies have what they call a “maturity age.”
A maturity age depends on each insurance company, but the most common is at 120 years old. If you live to be 120, you will get a check for your cash value. However, if you die before that, your cash value disappears and your family will get your death benefit.
So, since it is more likely that you won’t live till 120, how can you use your whole life insurance cash value?
Well, you can easily take out your cash value from your insurance company. You can tap into it any time you like. You can do this by doing one of the following options:
- Taking out a loan against the cash value. If you choose to take out a loan on your insurance, you will still need to pay it back with interest. If you do not pay the loan, it is highly likely that the insurance company will deduct what you owe from your death benefit.
- Surrender your policy. This is another option. You can cancel or surrender your policy once it has built up a cash value. The insurance company will give you a percentage of your policy’s cash value depending on what type of policy you have.
Is Whole Life Insurance for You?
With all of this in mind, you may be wondering if a whole life insurance is the best fit for you. We get it, it is not an easy decision, and there are a lot of factors to weigh in before you decide.
Think of it this way, if you are in need of long term insurance, and you want something to supplement your retirement savings, then yes, a whole life insurance can be a good option. And one that can provide you with some long-range financial flexibility.
Before you decide on getting whole life insurance, however, you need to map out your overall financial picture. Because once you decide to invest in a whole life policy, you need to be able to commit to it.
You need to understand every benefit and every limitation (such as high investing fees) so you know if you’re getting your money’s worth. It’s always a good idea to speak with a financial advisor or a financial professional to help you with these matters. And one that doesn’t get a commission from selling whole life policies.
