How Whole Life Insurance Can Help You With Multiple Financial Goals

As you go through life, you’re likely to have many financial goals: saving for retirement, paying for your child’s education or wedding, or having enough for emergencies. And for many of these goals, there’s a financial product specifically designed to help you reach it. One of the best ways to save for retirement is a 401(k). When saving for college, a 529 is likely your best option.

Here’s the rub: While each product provides an efficient way to reach the goal it’s designed for, because it was specifically designed for that goal, it’s usually not flexible enough to help reach other goals if something changes. For example, if you try to pay for your child’s college tuition using the money in your 401(k), you’ll owe taxes and a penalty.¹

There is, however, a product that is flexible enough to help you reach multiple goals: whole life insurance. Many people naturally think about life insurance as a way to leave something behind when they’re gone. But the reality is that it can do so much more. In fact, when used in conjunction with other financial products, whole life insurance can become a key financial utility player in your financial plan.

Additional benefits of whole life insurance

Here’s how whole life insurance can be an effective way to help meet many of your financial goals, even as they change over time.

Whole life insurance can help you protect your family

Many people meet this goal with term insurance. Term insurance, which offers a death benefit for a period of time, can be the most cost-effective way to get the largest amount of coverage. But term insurance only offers a death benefit, meaning most people pay their premiums for years and get nothing more than the peace of mind that if something were to happen, their family would be covered. With whole life insurance, you get that peace of mind plus the additional value a whole life policy can provide beyond the death benefit.

Whole life insurance can help grow your money over time

There’s no question that owning stocks is one of the best ways to help grow the value of your money over the long term—historically, they have outperformed many other types of assets over the long term. When you’re saving for retirement, add in the tax advantages you can get with an IRA or 401(k), and they become a great way to build your nest egg.

But we all know that stocks can be a bit of a roller coaster. That’s why most portfolios include a percentage of more stable (but slower growth) assets like cash and bonds. Because whole life insurance cash value is guaranteed to grow and won’t lose value when the market drops, it can also eventually become an asset that behaves similar to the way bonds would in your overall portfolio. That can allow you to keep more of your investment dollars in stocks, resulting in more potential for growth over time.

Whole life insurance can help you save for an emergency

In most cases, it’s a good idea to have six months’ worth of expenses set aside for an emergency like a job loss or a big home repair. Ideally, this money should be in a checking or savings account, which ensures that it’s readily available when you need it. But that can also mean that you’re earning next to nothing on a sizable amount of money. Because the cash value of whole life insurance never goes down and is easy to access, you could eventually consider some of your cash value as emergency funds, which could allow you to keep less money in savings or checking—perhaps putting it to work in investments instead.

Whole life insurance can help you save for college

When you’re saving for college, a 529 is an efficient way to go because you’re getting tax advantages on the money you invest for your child’s future college costs. If you have unused 529 funds, there’s some good news: Beginning in 2024, you’ll be able to roll up to $35,000 of unused funds into a Roth IRA. But anything above that you’ll owe taxes on as well as a penalty. Whole life insurance also offers tax advantages, and it’s one of the few assets that’s not factored into federal financial aid calculations.

Whole life insurance really shines when it comes to managing your money in retirement

When you get to retirement, you’ll typically have two key financial goals: generating reliable income with your savings and leaving behind a legacy. Whole life insurance can help with both.

Generating retirement income: Most people will live off investments in retirement, which is great when the market is performing well. But when the market declines, you’ll have to withdraw a larger portion of your investments to get the same income you would need to live. During a recession, that can take a big bite out of your portfolio. Since the cash value of whole life insurance never declines, it can be a great source of income during those down years.² Then when the market does recover, you can switch back to withdrawing from your investments.

In addition to helping you weather down markets, whole life insurance can help you be more tax efficient as you generate your income. That’s because you can withdraw the basis that you paid into your policy tax-free. If you borrow against your policy, the money isn’t taxed so long as the policy stays in place. That can help you avoid crossing into a higher tax bracket in retirement if you need extra income in a given year.

Leaving a legacy: The death benefit of a whole life insurance policy easily passes to your beneficiaries. Knowing you have a death benefit that will leave behind a legacy can free you to spend down other assets.

People are quick to criticize whole life insurance by comparing it directly to other financial products. Because whole life insurance is both life insurance and accumulates guaranteed cash value that never declines, it’s tough to make such a direct comparison. That’s because the real value of whole life insurance isn’t its ability to help you meet any single goal; the real value is its flexibility to help you meet almost any goal as your needs change.

When combined with other financial products, many people find whole life insurance can help them be more efficient overall with their financial plans. It becomes the cornerstone because it’s the one financial product that can efficiently help you achieve so many goals.

¹ If you withdraw money from a traditional 401(k) prior to 59½.

² Borrowing or withdrawing money from your accumulated cash value will reduce your death benefit.