Whole Life Insurance
What is Whole Life Insurance?
Whole life insurance is a permanent insurance policy guaranteed to remain in force for the life of the insured as long as premiums are paid. You’ll choose your coverage amount, and your premium will be calculated based on your age, gender, and health. As long as you pay your premiums, your whole life insurance policy will stay in effect and your premiums will remain the same regardless of health or age changes.
Over time, the premiums you pay into the policy start to build cash value, which can be used under certain conditions. The cash value can be withdrawn in the form of a loan or it can be used to cover your insurance premiums. All loans must be repaid before you pass or they will be deducted from the policy’s death benefit.
How Does It Work?
While whole life insurance policies act as an investment because of the cash value. You could after many years, once the cash value is at a high amount and you no longer need the life insurance could cash it out.
When you buy a whole life policy, you are buying both life insurance and a tax-free savings vehicle. Each year a growing part of your premium goes into the savings vehicle. The cash balance in it grows tax-free at an interest rate guaranteed by the insurer.
Most whole life insurance is sold by mutual companies. They have a long history of paying dividends to policyholders on top of the guarantees. The dividends end up increasing both your cash balance and your death benefit.
You can tap the cash value by taking loans out against it. The loans are tax-free and don’t have to be repaid but reduce the death benefit your heirs will receive.