Whether you’re starting a family or getting married, people usually start to think about life insurance when someone else starts to depend on their ability to earn an income. And that’s great, because that’s exactly what the death benefit is for.
But, as you learn more about life insurance, you’re likely to find that many policies — for instance, whole life insurance — have more than just a death benefit. In fact, while life insurance is primarily about a death benefit for the people who depend on you, it can also become an important part of a financial plan through the benefits life insurance can provide while you’re alive.
What are the benefits of whole life insurance? Here are some of the key things you should know.
WHOLE LIFE INSURANCE NEVER EXPIRES
One of the most appealing benefits of purchasing a whole life insurance policy is this: As long as you pay your premiums, your death benefit will never expire. It is guaranteed to be paid regardless of when you die, whether that’s tomorrow, in five years, 80 years or even further away.
That’s a key difference between whole life insurance and a term life insurance policy, which will only pay the death benefit if you pass away during the window of time (or term) that your policy covers.
PREMIUMS ON WHOLE LIFE POLICIES STAY THE SAME
Premiums are the monthly payments that you make to an insurance company to pay for your policy. Whether you have a whole life or another kind of insurance policy, you will be required to pay premiums. But all premiums are not created equal.
The premiums that you pay for your whole life insurance policy are guaranteed to remain fixed and consistent for as long as you have your policy. Other types of insurance policies may require you (or allow you) to adjust your premiums over time.
WHOLE LIFE INSURANCE BUILDS CASH VALUE
Cash value is one of the key living benefits of whole life insurance. A portion of every premium payment you make is added to your policy’s cash value. That becomes money that you can access at any time for any reason.1 Since it’s guaranteed never to go down, it can become an important, stable part of your financial plan.
WHOLE LIFE POLICIES CAN EARN DIVIDENDS
In addition to guaranteed cash value growth, many life insurance companies pay dividends. While you can take dividends as cash or use them to pay a portion or all of your premium, many people reinvest them in their policies. That can allow your cash value to accumulate even more quickly.
WHOLE LIFE INSURANCE HAS TAX ADVANTAGES
Life insurance has several key tax advantages. The death benefit is typically tax-free. In addition, the cash value growth (in addition to growth through dividends) is tax-deferred — you would only owe tax on the growth if you surrender your policy and take out the money. You can always take the amount you paid into your policy tax-free. In addition, you can borrow against your money — perhaps to ride out a market downturn in retirement — without paying taxes.
TAKING THE NEXT STEP
Although it may seem like you need to choose between whole or other kinds of life insurance, the truth is that the most secure financial plans typically include a mix of multiple kinds of policies, perhaps term and whole life insurance. This can give you more flexibility to prepare for any of life’s many possibilities. A financial professional can help you find the right mix of insurance and show you how it fits into your overall financial plan.
1 Accessing your cash value will reduce your death benefit.