The benefit of whole life insurance extends far beyond the peace of mind that your family will be protected should something happen to you. Whole life insurance builds cash (or accumulated) value, which makes it an asset that you can use throughout your life. From a source of funding for emergencies to playing a key role in retirement planning, when you learn more about benefits of whole life insurance, you’ll find that it can become a flexible and critical part of your financial plan.
These are some of the key benefits of whole life insurance that you can take advantage of throughout your life.
- GUARANTEED GROWTH AND UNIQUE TAX ADVANTAGES
For starters, the death benefit from a whole life insurance policy is generally tax-free. But a whole life policy also features a cash value component that’s guaranteed to grow in a tax-advantaged way – it will never decline in value. As long as you leave the gain in your policy, you won’t owe taxes on it. Further, there are ways to access the cash value without paying taxes on that money. Many insurers also pay dividends that can help your cash value grow and compound even faster. Though they are not guaranteed, Northwestern Mutual has paid a dividend every year since 1872.
- FLEXIBLE FUNDS FOR RETIREMENT
In retirement, cash value in a whole life insurance policy can be a stabilizing force in a financial plan, helping you manage your taxes and ride out market downturns. If you no longer need the death benefit and would like guaranteed income from your life insurance, you also may choose to have the policy payout a lifetime income in the form of an annuity.
- COLLEGE SAVINGS
Life insurance cash value is one of the few assets not considered in federal financial aid calculations for college. So, if you have college-age children and a whole life insurance policy, you can use the policy’s cash value (via policy loans or policy surrenders) to help pay for college expenses. Because this asset is excluded from financial aid calculations, you’re also not hurting any potential financial aid offers.
- LOCKED-IN INSURABILITY
Many companies offer an additional benefit on whole life insurance policies that allows you to purchase additional insurance at set times in the future regardless of changes to your health. Basically, this means you can buy more insurance without taking another health exam — even if there is a change to your health that would make it difficult to get insurance. Buying whole life insurance early in life is the best way to lock in your insurability, whether you are a parent buying life insurance for your children or a young, single person without a spouse or children.
- LONG-TERM CARE
With some whole life insurance policies you can access your death benefit in order to pay for long-term-care expenses. In some cases, you can exchange your policy in the future for a long-term-care policy. A financial planner or professional can tell you more about these options.
Eventually, whole life insurance allows you to plan for a legacy because it will pay a death benefit. You can pass the death benefit on to your heirs, or if you have a favorite charity or local cause, you can name the organization as a beneficiary to fund a legacy gift.
Whole life insurance is a flexible asset that can add value to your financial plan while you’re still living. Just be aware that utilizing those living benefits may trigger tax consequences and may affect other aspects of your plan, so work with a financial professional and tax advisor to understand your options and determine the best course for your individual circumstances and needs.