Courtesy Advisors Insurance Brokers
By Brian M. Johnson, MBA, CLTC
Amid recent news about prominent banks failing, inflation and increased market volatility, many Americans are finding refuge in whole life insurance.
To be clear, whole life insurance is NOT an investment. It is a type of life insurance policy that provides coverage for the entirety of one’s life, as opposed to term life insurance which only covers a specific period of time. While whole life insurance offers several benefits, one of the most important considerations for many people is the safety of the policy.
What is whole life insurance? It is a type of permanent life insurance that provides coverage for the entirety of one’s life. Unlike term life insurance, which only provides coverage for a specific period of time, whole life insurance does not expire as long as premiums are paid. In addition to providing a death benefit, whole life insurance policies also build cash value over time, which can be borrowed against or used to pay premiums.
One of the main benefits of whole life insurance is its safety. Unlike other types of investments, such as stocks or mutual funds, whole life insurance policies are not subject to market fluctuations. This means that the cash value of the policy is guaranteed to increase over time, regardless of economic conditions. In addition, whole life insurance policies are backed by the financial strength of the insurance company, which provides an additional layer of safety.
When you purchase a whole life insurance policy, you are essentially entering into a contract with the insurance company. The insurance company agrees to pay a death benefit to your beneficiaries in exchange for the payment of premiums.
In addition, the insurance company guarantees that the cash value of the policy will increase over time, regardless of market conditions. This means that even if the stock market crashes or the economy takes a downturn, your whole life insurance policy will continue to provide coverage and build cash value.
In addition to the safety of whole life insurance policies, there are several other benefits to consider. For example, whole life insurance policies offer a fixed premium, which means that the cost of the policy will not increase over time. This can be especially beneficial for individuals who are looking for long-term financial stability and want to avoid the risk of rising premiums.
Another benefit of whole life insurance policies is that they can be used as a source of cash in times of need. Because the policies build cash value over time, policyholders can borrow against the cash value or even surrender the policy for its cash value if needed. This can be a valuable source of emergency funds or can be used to pay for other expenses, such as supplementing retirement income, college tuition or a down payment on a house.
Finally, whole life insurance policies provide peace of mind knowing that your loved ones will be taken care of in the event of your death. The death benefit can be used to pay for funeral expenses, outstanding debts, provide financial support for your family, and transfer wealth in an efficient means. Life Insurance death benefit proceeds are generally income tax free.
While whole life insurance policies offer a number of benefits, it is important to choose the right policy to meet your individual needs. When choosing a whole life insurance policy, there are several factors to consider, including:
The death benefit should be sufficient to provide for your loved ones in the event of your death.
The premium cost should be affordable and fit within your budget.
The cash value of the policy should grow at a rate that meets your long-term financial goals.
The insurance company should have a strong financial rating and a good reputation for paying claims.
As far as additional benefits, some whole life insurance policies offer additional benefits, such as long-term care coverage or accelerated death benefits. Consider whether these benefits are important to you.
Whole life insurance can offer you and your family guaranteed premiums and death benefits, competitive tax-deferred growth in cash values and tax-efficient way to transfer wealth to the next generation. Whole life is not right for everyone and it’s important you consult with your financial advisor and/or CPA to determine whether a policy makes sense for you.