How To Get The Most Out Of Whole Life Insurance
Whole life insurance is one of the major categories of coverage in Canada, and anyone getting life insurance needs to give it some serious thought. However, whether whole life insurance is the right option for you is not a simple question! Let me try and give you a little guidance.
When you need coverage for a limited period of time, such as the life of your mortgage, or until your children grow up, term life insurance is probably the best bet. However, if you want your family to receive a death benefit when you die, even in your old age, then whole life insurance is the way to go.
Whole Life Insurance Vs Universal Life Insurance
There are three main differences between whole and universal life insurance policies: premiums, benefits, and investments. The death benefit and premiums of a whole life insurance policy are fixed forever, while universal premiums and benefits can change over time. Additionally, the investment component of universal life insurance is much more flexible than whole life insurance.
Premiums. Whole life insurance premiums stay the same for the entire duration of the policy, whereas universal premiums can be negotiated higher or lower, depending on the company and your policy. Death Benefit. Because the premiums of universal life can change, so can the amount of death benefit. This is reflective of the amount of cash value in the policy at the time of death and can be negotiated before death with the insurance company. The death benefit of whole life insurance grows with the investment portion, but can be predicted more easily. Investments. Although both whole and universal policies have an investment component, only in universal can you decide what the investments consist of. In whole life insurance, the company decides upon the investments.
Learn more here: Whole life insurance vs universal life insurance.
Know What Youre Getting Into
Whole life insurance is a product that has some uses, but its not for everybody. The additional benefits offered by whole life can often be found by using your retirement and investment accounts for gains, in combination with a term life insurance policy. Before purchasing any insurance policy, be sure to fully understand the options available, and the various provisions each policy comes with.
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Key Features Of Whole Life Insurance
Whole life insurance shares some features with guaranteed level term life insurance, such as a fixed premium and a predetermined death benefit. Other features are unique to the various types of permanent life insurance or to whole life insurance specifically, including collateral value and tax-free dividends.
These features combine to produce a type of financial instrument that blends some familiar aspects of insurance coverage with the benefits of a relatively low-risk investment vehicle.
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Is Whole Life Insurance Tax Free
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 thats 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 wont owe taxes on it.
Cash Value And Surrender Value
Unlike term life insurance, whose entire value is tied up in the death benefit, whole life policies also have a cash value component that the policyholder can access before their death.
Whereas other types of permanent life insurance invest a portion of the cash value in market-traded instruments that can rise or fall in value, the cash value of whole life insurance can only increase over time if the policyholder makes timely premium payments.
If the policyholder temporarily becomes unable to make premium payments or chooses to stop making premium payments for any other reason, the policys cash value stands in for those missing payments. The cash value decreases proportionally with each premium payment made from it until the policyholder resumes regular premium payments or the cash value is depleted.
A whole life policys cash value is closely related to its surrender value, or the actual amount the policyholder receives if they choose to cash in the policy before their death. This is not a decision to be taken lightly, as fully cashing out a whole life policy voids its death benefit.
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Term Vs Whole Life Insurance: Which Is Right For You
If the distinction between term and permanent life insurance like whole life seems a little vague to you, youre not alone. While most people know that life insurance will pay a sum of money to their beneficiaries if they pass away, they may not be able to explain the differences and benefits of term life insurance vs. whole life insurance. But if you want to protect your familys financial future, its important to know the basics about these two options.
This article will help you better understand:
Whats The Difference Between Whole Life Insurance Vs Term Life Insurance
The key difference in term life vs. whole life insurance is coverage length. Both types of life insurance have their advantages and disadvantages.
Term life insurance is good for people who want a financial safety net for a specific number of working years, such as the years of paying off a mortgage. You can buy a term length such as 10, 15, 20 or 30 years. A small number of companies even offer 40-year term life insurance.
Term life insurance is much cheaper than whole life, but the downside is that you can outlive your term, meaning there wont be a life insurance payout.
Whole life insurance is good for people who want lifelong coverage and to build cash value. Your beneficiary will get a life insurance payout no matter when you die, as long as youve paid the premiums to keep the policy in force.
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Strategy : Boost The Death Benefit
If you have accumulated sizable cash value over the life of your permanent life insurance policy and do not intend to use these funds yourself, you may choose to leave a larger death benefit to your beneficiaries.
How can you pull that off? Its usually very simple. Just call your life insurance company and say youre interested in making a trade: Youd like to increase the death benefit in exchange for the cash value on your policy. Because the company doesnt want to lose your business, it will more than likely accept your request.
During the trade, your objective should be to completely drain the cash value and transfer the full amount over to the death benefit or the face value. For example, if you have a universal life insurance policy with a $200,000 death benefit and $100,000 in cash value, your goal is to completely empty the cash value and boost the death benefit to $300,000. Thats $100,000 more that will fall into your heirs’ hands instead of going to the life insurance company.
What Is A Whole Life Policy
Whole Life plan is also called as straight life, ordinary life. It remains throughout the insured whole lifetime provided the premiums are paid. A certain aforementioned amount is paid to the nominee in the event the insured dies. The policyholder at any time withdraw the policy or borrow against it. The maturity age for this policy is 100 years. If the insured lives past the maturity age, the policy will become matured endowment. The death benefit under this plan is tax free.
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Insuring Every Day Of Your Life With Aaa Life
Establishing a financial strategy is important, and with a Whole Life Insurance policy from AAA Life, you can rest easier knowing that those you love can be cared for after youre gone. Requesting this coverage is simple too just speak to an agent or apply online, answer a few simple questions, and you could be covered today. Its that easy with AAA Life.
What Is Term Life Insurance
A term life insurance policy is exactly what the name implies: Its a policy that provides coverage for a specific term or period of time, typically between 10 and 30 years. It is sometimes called pure life insurance because unlike whole life insurance, theres no cash value component to the policy its designed purely to give your beneficiaries a payout if you pass away during the term.
If you get a term policy to protect your family, you should think about whether your familys need for life insurance will change before the time the term expires. For most people that means the kids are grown up and on their own, the house is paid off, and theres some money that can serve as a safety net for the surviving spouse.
What Are The Different Types Of Whole Life Insurance
There are different types of whole life insurance options available in the market. However, you must know the variety of whole life plans to make an informed and smart decision.
Participating & Non-participating Whole Life Insurance
Participating and non-participating whole life plans are traditional whole life insurance plans. The only difference between both the plans is the cumulative bonus. While participating plans acquire a bonus from the company based on the companys performance, non-participating plans do not consider the bonuses.
However, both policies will cover your whole life and have a level sum assured. You may find these plans with two further variations:
- Regular pay option
- Limited pay option
Standard Whole Life Term Plan
A whole life term plan is a life insurance plan which covers your life till the age of 99. A standard whole life term plan will have the following options:
- Regular premium payment
- Limited premium payment
- Pay till you turn 60
In any case, the policy will continue till your demise, and if you survive till 99 years of age, the sum assured is paid to you.
Whole Life Term Insurance Plan with Return of Premium
How To Buy A Whole Life Term Plan Online
At Canara HSBC Oriental Bank of Commerce Life Insurance you can buy the whole life plan online following a simple six-step process:
Calculate your term cover need and decide premium payment mode
The process starts with your contact details and a few personal information such as your date of birth educational qualification and income. Your details give a clear idea about your maximum life cover eligibility.
After you have chosen the cover amount, you need to choose till 99 years of age as the policy term for whole life cover.
You can also select a premium payment mode to see a tentative figure for the amount you will pay. If you are salaried you can select a monthly mode of premium payment and see the impact of term insurance cost on your budget.
You should pay special attention to the e-mail ID you provide here, as this will be used for all communications regarding the policy by the insurer. So, make sure that you regularly access the email you provide here.
Provide Additional Details
The second step considers your location, occupation and existing coverage details. These details help determine your maximum cover eligibility.
Some of these factors like state of residence and occupation can influence your premium for the life cover.
Customize Your Whole Life Insurance Plan
Once you have decided on the amount and tenure of the cover, its time to choose your plan features.
You can select the following plan features:
Go through the Medical check-up
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See How Whole Life Insurance Can Provide Peace Of Mind
Michaels employer provides a basic amount of Term Life Insurance, which was enough when he was single. Now he has a family, a mortgage and many other responsibilities. With an easy, affordable paycheck deduction, Michael was able to add Whole Life Insurance to his benefits plan. With this coverage, he knows his family will be better protected if he dies. His policy will also gain cash value, so Michael and his family will have additional financial options as they grow older.
How Michaels plan works:
If Michael dies, his loved ones can use the money for:
Michael might also appreciate these benefits:
- A guaranteed interest rate
Information Required For Using The Lic Tech Term Plan Calculator
- The customer age should be between 18-65 years
- The policy term should be between 10-40 years
- The customer is free to select the premium payment method: Regular, Limited, or Single
- Whether the customer is a smoker or a non-smoker
- The gender of the customer
- Whether a customer wants to incorporate additional riders or not
- The type of sum assured a customer is looking for
- The minimum sum assured should be Rs. 50 lakh, but there is no restriction for the upper limit
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What Is Whole Life Insurance The Pros And Cons
Whole life insurance, by definition, offers coverage for your entire lifetime so long as you continue to pay premiums. It is sometimes referred to as “guaranteed whole life insurance”, because insurers promise to keep the premiums constant over the life of the policy. Should you die, and the policy hasnt lapsed, the beneficiaries will receive a payout.
In addition, whole life insurance offers tax benefits and has a cash value component which grows over time. It’s suitable for those who want not only the benefits of life insurance coverage, but also using the cash value as an investment vehicle.
Can You Withdraw Money From A Whole Life Insurance Policy
Make a withdrawal
You can usually withdraw part of the cash value in a whole life policy without canceling the coverage. Instead, your heirs will receive a reduced death benefit when you die. Typically you wont owe income tax on withdrawals up to the amount of the premiums youve paid into the policy.
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Tax Advantages Of Whole Life Insurance: Tax
The cash value component of whole life insurance has some important tax benefits worth enumerating on their own.
The first is tax-free basis. In plain English, this means that the cash value components basis the amount of the premium that funds the cash value is not always considered taxable income when its cashed out.
Generally, IRA basis withdrawals are not subject to income tax, although income tax does apply to withdrawals of IRA gains . IRA gains arent separable from the basis during the withdrawal process that is, you cant only withdraw contributions to avoid taxation.
Likewise, whole life basis withdrawals are usually not taxable, although they may be reduced by surrender charges in the policys early years. Additionally, unlike with traditional 401s and IRAs, life insurance basis withdrawals are separable from growth withdrawals.
Policyholders are therefore more likely to be able to withdraw basis only and avoid income tax entirely although its always a good idea to consult the policy issuer and a tax advisor before executing a withdrawal that could have significant financial implications.
However, any interest paid on the loan is generally not tax-deductible, as is the case with interest on mortgage loan payments.
Tax-Free Death Benefits
How Do Whole Of Life Policies Work
A whole-of-life insurance policy is a contract with an insurer that offers a payout to your family or other beneficiaries in the event of your death. Unlike fixed-term life insurance, which has a specified end date and will only pay out if you die before this point, whole-life insurance only ends when you pass away.
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Best For Company Longevity: New York Life
New York Life
- Plans: 8Issue Ages: Doesn’t specify
- Issue Ages: Up to 90
New York Life is the largest and most well-established mutual insurer in the United States and has been in business longer than any company on our list, making it our top pick for longevity.
Some policy details on the website
Opportunity for dividends
No online quotes for whole life insurance
Must call a local agent
New York Life is the oldest company on our list. Founded in 1845, it has a more than 175-year history of financial success and currently holds an A++ rating with AM Best. The company had 34 complaints with the National Association of Insurance Commissioners in 2020, which was well below an average amount for its size.
New York Life offers two types of whole life insurance policies:
- Whole life insurance: Combine cash value accumulation with guaranteed coverage
- Custom whole life insurance: Maximize the cash value and pay premiums for as few as five years
Each policy gives you the opportunity to receive dividends.
The company also offers several rider options:
- Accidental death benefit rider
- Living benefits rider
- Paid-up additions
Unfortunately, there isnt a way to get a quote for New York Life’s whole life insurance online. Theres a brief form on New York Lifes website to connect you with a local agent.
Read the full review:New York Life Insurance