Comprehensive Guide to Whole Life Insurance

Whole Life Insurance

Among the different types of permanent life insurance options available, Whole Life insurance is one of the most popular choices. It delivers lifelong coverage for applicants with many guarantees, which appeals to a lot of individuals. Unlike term life insurance that covers a particular period (10-30 years), whole life insurance is more long-lasting.

In essence, whole life insurance is a combination of two elements: an insurance product and “cash value”, i.e., an investment account. The insured person has to pay their set premiums on time. This initiative can protect the future of their family members or other beneficiaries in case of emergencies, who get the lump sum amount.

In this article, we discuss more details on whole life insurance as a whole.

Features of Whole Life Insurance

In general, the quotes for whole life insurance cost more than that of term insurance. This is because of two reasons:

  • Whole life insurance offers full life coverage and related benefits.
  • You can expect a higher cash value with the policy.

Overall, specific features are common in whole life insurance. As a result, it is a better alternative to term life insurance.

1. Cash value accumulation

Insured individuals with this policy can build their cash value with time, besides getting a set death benefit. Similar to a 401(k) plan, this value grows without tax limitations. To elaborate, the policyholder has no compulsion to pay any taxes at high-income periods. They must pay their taxes at the time of fund withdrawal.

2. The rate of return is guaranteed

With whole life insurance, you would get an assured rate on return for the cash value of your policy. The average rate of return each year for this insurance policy type is 1.5%, as per the Consumer Reports. Compared to most other banking products, the interest rate here is low but manageable.

3. Assured death benefits

This policy does offer death benefits. The beneficiaries get the total death benefit that the policyholder chose during the initial purchase if the policy is still active.

Factors that Affect the Pricing of the Whole Life Insurance 

Your rate would depend on the main coverage amount that you select. Besides that, other important factors to consider here include:

  • Gender of the policyholder
  • Age
  • Weight and height measurements
  • Previous as well as ongoing health conditions
  • Substance abuse history
  • Marijuana use/nicotine usage history (including gums and nicotine patches)
  • Family health history
  • Criminal history
  • Credit
  • High-risk hobbies, e.g., rock climbing
  • Driving record (data about violations like speeding tickets and DUI reports)

Other factors that can affect the total price include the following:

  • Assured return rate-A few of the firms provide more guaranteed returns. This can increase the annual premium amount(s).
  • Payment period-Policyholders can choose short-term/long-term periods for paying the policy premiums, like 10-20 years.
  • Dividend crediting– Some of the policies for whole life insurance deliver dividends. You, as the policyholder would have the chance to pick how you wish to receive yours. A dividend payment in the form of credit for premiums can decrease the annual expenses of policyholders.

Payment Considerations for Whole Life Insurance 

The total whole life insurance cost hinges on a lot of factors, as mentioned previously. For paying the premium amount, policyholders for whole life insurance can pay a fixed payment each year.

In some cases, they get the choice to pay either bi-annually, monthly, or quarterly. This varies from insurer to insurer. If you opt for the policy plan that covers multiple payments per year, you might have to pay extra fees.

Tax Considerations for Whole Life Insurance 

Policyholders cannot deduct their premium amounts after payment for the whole life insurance during their tax returns. Nevertheless, the beneficiaries may have the liability to pay their federal income taxes on the death benefit they receive upon maturity. Plus, if you earn additional interest, they fall under taxable income.

Benefits of Whole Life Insurance 

The following are the main benefits of getting whole life insurance.

  • Bigger tax benefits-With time, the total premium of the policy grows and no taxes are levied on them. Plus, you can expect benefits like low-tax, low-cost borrowing power and tax-free windfalls. Moreover, you can withdraw your funds when you need them.
  • The dividends of whole life insurance counterbalance the policy costs– The dividend of this policy is typically very flexible. Policyholders can use them to reduce their overall premium payments, improve the interest-earning potential of the cash value, or use it for life insurance loan payments.
  • Better financial flexibility-For individuals interested in not developing equity or buying a home, this type of insurance loan can work as a line of credit/home equity loan. So, in case you do not wish to borrow the cash value, it is still usable for completing other premium payments.
  • Premiums become cost-effective over time– As long as the insured individual keeps completing their annual payments, the premium stays stable even if the person is not physically healthy. With time, inflation in the market can make the overall premium cheaper.

Why choose whole life insurance?

The whole life insurance policy is useful for you if you want to secure permanent protection of your assets and the future of your loved ones over time. The fixed premiums and death benefit guarantees are appealing reasons to get this policy.

For the best outcome, you should contact trained agents to plan the best policy for you.