If you have a need for permanent life insurance protection, you may want to start by considering whole life insurance. The simplest and most conservative of all permanent policies, whole life insurance is popular because of its certainty and predictability.
With a whole life insurance policy, you choose a death benefit amount to meet your needs. The life insurance company charges you an annual premium based on your age, health, and other factors. The premium and death benefit both stay level as long as the policy is in-force.
Not sure how whole life insurance could fit into your wealth management plan? Below are three reasons why whole life is a popular and effective choice for managing your life insurance needs:
Permanent death benefit
Whole life insurance is permanent. That means the policy stays in-force as long as you continue to pay the premium, no matter how long you live. Some policies endow at age 100, meaning the policy’s death benefit is paid out to you as cash at that time. However, assuming you pay the required premiums, you will always have a death benefit in place.
Also, the death benefit is guaranteed to stay level. The benefit amount can’t be changed at any point in the future, so you always know exactly how much in proceeds your beneficiaries will receive.
This kind of certainty can be helpful if you have a permanent need for protection. For example, you could use whole life insurance to fund a grandchild’s education or to provide your spouse with a nest egg after your death. If you own a business, you may need a reliable, consistent death benefit to fund a buy-sell agreement or to pay estate taxes.
The death benefit isn’t the only consistent component of a whole life policy. The premium also stays flat for the life of the contract. The premium amount will never change because of things like interest rates, market fluctuations, or changes in health or age. As long as you keep the policy in-force, your premium amount stays level.
Guaranteed, tax-deferred cash value accumulation
The premium consists of two parts. One is the cost of insurance. A portion of your premium goes to the insurance company to cover the cost of administering the policy and insuring your life.
The remainder of your premium goes into the policy’s cash value account. In whole life policies, the cash value grows through the payment of interest and dividends. Your policy will have a guaranteed minimum interest rate, so you’ll always know the least amount of growth you’ll see each year. However, your interest rate could be higher than the minimum in some years.
Some companies also pay dividends to their whole life policy owners. The dividends are based on the financial performance of the insurance company. If the company performs well, you get higher dividends, which you can use to pay a portion of your premiums or buy additional insurance. You can also take the dividends as income.
You can use your accumulated cash value to generate tax-efficient income through the policy’s loan provision. You simply borrow a tax-free amount from the cash value. You then repay the loan as part of your regular premium payments. If you pass away, any outstanding loan balance is deducted from the death benefit. The loan provision could be an effective way to supplement your income in retirement.
Ready to examine whole life insurance? Let’s talk about it. Contact us today at America’s Annuity. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.