Life Insurance
Understanding Whole Life Insurance
Sep 3, 2020
Whole life insurance is considered a permanent life insurance policy, meaning your beneficiaries will receive a death benefit regardless of your age or any health issues you may face later in life.
There are two main types of life insurance: permanent life insurance and term life insurance. Term life insurance covers the policyholder for a specific period, usually 10, 20, or 30 years. If the policyholder passes away during the term, their beneficiaries receive the death benefit. However, if the term expires and the policyholder is still alive, the policy ends, and they may choose to buy a new one.
Whole life insurance, on the other hand, combines two components: a life insurance element that pays a death benefit to the policyholder’s beneficiary, and a cash value component that grows over time. Whole life insurance offers more flexibility, as policyholders can take out tax-free loans against the cash value once it’s sufficient or cash out the policy if they no longer need it. However, whole life insurance premiums tend to be higher than term life insurance due to the lifetime coverage and cash value growth.
How much does whole life insurance cost?
Whole life insurance tends to be more expensive compared to other types of policies due to its lifetime coverage and guaranteed death benefit. At Surevix, our whole life policies offer guaranteed approval, meaning no medical exams are required. Since premiums are fixed, they will remain the same throughout your lifetime, even during retirement. However, it’s important to note that you will need to continue paying the premium for as long as you live. Before committing, it’s crucial to fully understand the costs and terms of the policy to ensure it aligns with your financial goals.
What is whole life insurance cash value?
The cash value of a whole life insurance policy is a savings-like component that grows over time on a tax-deferred basis as you pay your premiums. This accumulated cash value can be used to pay future premiums, helping keep your policy active even if your income changes. Additionally, you can borrow against the cash value, providing a source of funds for emergencies, medical expenses, or even leisure activities, through a tax-free policy loan. However, interest will accrue on any outstanding loans, so it’s important to repay them when possible. Keep in mind that any loans and interest will reduce the final death benefit paid to your beneficiaries. For policies with a larger death benefit, it’s wise to consult a financial advisor to ensure whole life insurance fits your long-term financial plan.
Who Gets The Death Benefit From A Whole Life Insurance Policy?
With a whole life insurance policy, the policyholder can choose anyone or any organization to be the beneficiary of the death benefit. This typically tax-free payout from the insurance company can help provide financial security for the policyholder’s family, replace lost income, or even contribute to a charitable cause.
Some policies may include a graded death benefit, where the payout is a percentage of the full death benefit or premiums paid if the insured person passes away within the first few years of the policy. After the policy has been in effect for a longer period, the death benefit will increase to the full amount.
How to personalize a whole life insurance policy
Whole life insurance policies often allow customization through the addition of riders or endorsements. These optional features can increase the cost of premiums, but they provide extra coverage or benefits to enhance the policy.
Here are a few common riders available with whole life (and some term) policies. Keep in mind that this is just a sample, and there are many other riders and endorsements that can be added to tailor the policy to your needs.
Family income benefit rider
If you’re worried about how your family will financially manage in the event of your untimely death, a family income benefit rider might be a good option. This rider provides a monthly income, along with a lump sum death benefit, to help support your family’s financial stability over time.
Disability waiver of premium
The disability waiver of premium rider ensures that if the policy owner becomes disabled and is unable to work, they can stop paying premiums without the risk of losing their life insurance coverage. This rider helps protect the policy from lapsing, preventing the forfeiture of any premiums already paid. It’s a valuable option to safeguard your policy in case of an unexpected temporary or permanent disability.
Long-term care rider
As life expectancies increase and long-term care costs continue to rise, many people find it challenging to pay for in-home care, nursing home care, or rehabilitation services, as they aren’t typically covered by health insurance. A long-term care rider can help offset some of these expenses, making it an option worth considering for those seeking both life insurance and long-term care coverage.
Accelerated death benefit rider
This rider allows the policyholder to access a portion of their life insurance policy’s death benefit if diagnosed with a terminal illness. It can be used to cover costly life-extending treatments, medications, or daily living expenses. Typically, the funds are provided on a tax-free basis through a policy lien, which reduces the death benefit paid to beneficiaries when the insured passes away. This rider is available with some term policies as well.
Travel accident endorsement
This endorsement provides additional coverage if the insured dies as a result of a qualified travel-related accident. In such cases, the policy’s face amount is increased, offering added financial protection for the policyholder’s beneficiaries.
Why should I consider whole life insurance?
Whole life insurance provides long-term protection for your loved ones, legacy, or business, as long as you can afford the premiums throughout your life.
Here are a few reasons it may be right for you:
- You need coverage for your entire life.
- You plan on using your retirement savings but still want to leave a financial gift to your loved ones.
- You wish to manage estate taxes, so your beneficiaries don’t need to dip into their inheritance.
- You want to fund a special needs trust to ensure lifelong care for a dependent.
- You aim to equalize inheritance when passing down business property to a single child.
Why Whole Life Insurance with Surevix Might Be Right for You:
- You’re between 60-85 years old and looking for coverage for your final expenses.
- You want the security of a guaranteed issue policy, bypassing traditional underwriting, and ensuring coverage regardless of your health.
- You prefer a policy with a cash value component that you can access if needed.
- You’re looking for a policy with a lower face amount.
However, it’s essential to make sure the monthly premiums fit comfortably within your budget. Some policyholders may struggle to keep up with payments, causing them to lose the benefits of the cash value growth and death benefit.
Ultimately, both term and whole life insurance policies have unique advantages. Choosing the best one depends on your specific needs. The first step is to answer a few quick questions to discover which product suits you and your family best.