Wednesday, June 15, 2022

Why Have Whole Life Insurance

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Fixed Benefit For Your Beneficiaries

Why Whole Life Insurance Is A Rip Off!

The decisions you make now will set up your future, even when youre no longer here to provide financially for loved ones. You can depend on a guaranteed amount of money going to your heirs or other designated causes from what is known as a death benefit. This life protection wont vanish if premiums are paid its a financial product that remains in place for your entire life.

Is Whole Life Insurance A Good Investment

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On the surface, life insurance seems like a simple concept you pay an insurance company a premium and, when you die, the company pays your beneficiaries. Permanent life insurance policies such as whole life insurance also contain an investment component, where things can get complex.

Part of your whole life policy premium goes into a tax-deferred account that accumulates cash value over time. With any cash value life insurance policy, as the account grows, you can borrow against it or potentially withdraw money. Insurance companies tout these policies not only as a way to leave a financial legacy to your heirs, but also as a good investment tool.

Critics of this strategy point out that returns on these investments tend to be lower and fees higher than with other investment vehicles. They say term life insurance a cheaper life insurance option that does not contain an investment component is a better fit for most people.

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Why Whole Life Insurance Gets Cheaper Over Time

Life insurance is one of the best investments you can make. It provides your loved ones with financial protection when you pass away, offering them and you peace of mind. But, if youre shopping around for life insurance, youre going to find that there are a few different types of coverage options one of them being whole life.

You may have heard that whole life premiums drop in price over time. Put simply, your premiums will be reduced by dividend payments, which eventually can grow larger than your entire premium due. We explain this concept further below. Lets explain what whole life insurance is and how it works before we address how you can adjust your dividend option. Then, well present to you the reason that whole life policies can have a reduction in the amount of cash you need to put into them.

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How Much Will Each Kind Of Policy Cost Me

Many factors contribute to the cost of life insurance policy some you cant control, but others you can. By learning what impacts your premiums before you get a life insurance policy quote, you can better understand your options when choosing whats best for you and your family.

Your policy type , age, health, gender, driving record, occupation, hobbies, and the amount your loved ones would receive all contribute to the cost.

Figure out how much you may need and what it could cost

Use Your Dividend To Offset Premium

Whole Life Insurance

The dividend payment rises over time as your cash value account accumulates higher and higher value . Premiums go down when you use your increasing dividend payment pay the premiums. You will need to pay the difference in cash. Eventually, the dividend payment often grows greater than the premium payment. At this point, you can take the excess in cash or buy more paid up whole life insurance, which further increases your dividend payment.

You will need to tell the life insurance company to use your dividend payment to offset premiums. You dont need to speak to your agent to accomplish this, you can call the life insurance company directly. Keep in mind that when your agent designed the policy, he presented you certain projections. If you change your dividend option from, buying more paid up insurance, to reducing your premiums, keep in mind that this has a material change on your future policy and you should review the new projections in the form of a new illustration. Your agent or life insurance company can produce a new illustration at any point during the lifetime of your policy, and you can compare projections when you choose different options with your dividend payment.

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Is Whole Life Insurance Always A Bad Idea

As mentioned above, whole life insurance can be a means of forcing yourself to accumulate some savings, and there’s something to be said for having lifelong coverage. But whole life insurance is so prohibitively expensive that unless you’re really doing well financially, you’re at risk of being forced by circumstance to drop your coverage at some point when you can’t afford it, thus negating any benefit that the policy would have offered you or your loved ones.

Generally speaking, you should expect it to take around 15 to 20 years before a whole life policy’s cash value will be worth more than the premiums you’ve paid into it, because during that time, a large share of those premiums is going toward fees, commissions, and the many expenses associated with providing the policy. That means if you dump your policy at the 12-year-mark, you’re out of luck.

The bottom line is this: If you have the means to pay hefty whole life premiums over time, you have the means to put those same funds into tax-advantaged retirement plans and invest them the way you want to. And while tapping retirement funds early to cover other financial needs generally isn’t an ideal choice, you do have some flexibility when it comes to those accounts. You can withdraw IRA funds to buy a home, for example, and you can borrow from your 401 if you must. As such, there’s little sense in locking your money away in a whole life policy when term life insurance offers you much more financial leeway.

Is Whole Life Insurance A Bad Idea

Whole life insurance is a terrible idea if your insurance needs can be filled by term life. If you buy whole life instead, youll be paying significantly more over many years for coverage thats more than you need.

But some people need life insurance for the duration of their lives and want the guarantees offered by a whole life insurance policy. For them, the price may be worth it. Whole life insurance policies also usually pay dividends, which can offset their cost.

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Lifestyle Reasons To Buy Whole Life Insurance

If you go beyond the numbers, there are simply times where how you live your life, or what youve accumulated, or even what you intend to do later on, which matters more than the dollars and cents of it all. Here are a few of those areas:

  • You have a Special Needs Child The whole argument that your childs need for a lump sum ends at 18 or 22 is completely and utterly thrown out the window. In fact, it should 1000% be placed in a third party special needs trust.
  • You have a liquidity Issue with your Estate Most people who owe a federal estate tax or a state estate tax usually dont have the actual cash to pay for it regardless of how rich they are. Want a cool example? Well it is a cool example for everyone except Joe Robbies Family. In 1990 when he died his family was forced to sell the Dolphins because they owed $47,000,000 in estate taxes. Yes that is 47 MILLION that the federal government got a hold of.
  • You have a charitable intent If it makes you happy to get your name on a building for the university or hospital of your choice, you can. And possible for very little out of pocket. Yup, you know what I am talking aboutgetting a permanent life insurance policy because your charitable intent will not be gone in 20 years. Additionally, depending on who owns the policy, payment of premiums may be an income tax deduction or upon eventual death an estate tax deduction.
  • So, maybe you actually do a need a whole life policy now what?

    Is A Whole Life Policy A Good Investment

    This is Why Whole Life Insurance Sucks!

    Whole life insurance probably should not be the centerpiece of any financial investment plan. Its not really intended as a way to make money, and the returns are low on the cash value. Instead, its purpose is to allow people to leave a legacy. However, as one part of a balanced portfolio, the cash value portion of a policy, which earns interest and is tax-deferred, can be a sound investment.

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    The Cost Of Whole Life Insurance

    Generally, whole life insurance is more expensive than the same amount of term life insurance coverage. However, whole life premiums remain stable and will not change.

    The cost will be determined by multiple factors, including amount of coverage needed, credit rating and relative health. During the underwriting process, a category is assigned based on these factors, and the rate is determined by how desirable the policyholder is considered to be.

    What Is Term Life Insurance

    Term life insurance provides coverage for a certain time period. Its often called “pure life insurance” because its designed only to protect your dependents in case you die prematurely. If you have a term policy and die within the term, your beneficiaries receive the payout. The policy has no other value.

    You choose the term when you buy the policy. Common terms are 10, 20 and 30 years. With most policies, the payout called the death benefit and the cost, or premium, stay the same throughout the term.

    When you shop for term life:

    • Choose a term that covers the years youll be paying the bills and want life insurance in case you die.

    • Buy an amount your family would need if you were no longer there to provide for them. The payout could replace your income and help your family pay for services you perform now, such as child care.

    Ideally, your need for life insurance will end around the time the term life policy expires: Your kids will be on their own, youll have paid off your house and youll have plenty of money in savings to serve as a financial safety net.

    All of the best life insurance companies sell term life, so its easy to find rates. You can get life insurance quotes online.

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    The Top Six Benefits Of Whole Life Insurance

    There are multiple types of life insurance policies available to protect your loved ones when you pass away. Whole life insurance is the most common form of permanent life insurance, which means that if you pay your premiums, you dont ever have to worry about your coverage expiring.

    Another common variety of life insurance is called term life. In a term life insurance policy, the life insurance protection expires whenever the selected term you chose is over. Renewing your term life insurance policy at that later stage in life would almost certainly cost significantly more every month that being if you could still qualify to get a policy. Get a quote about the cost of a term life policy.

    What Are The Pro And Cons Of Term Life Vs Whole Life

    Why Bloggers Hate on Whole Life Insurance  The Insurance ...

    The biggest difference between the two types of policies is that while both pay a death benefit to your beneficiaries, whole life also provides permanent coverage with a cash value component. That added value along with the certainty that the insurer will eventually have to pay a death benefit means that a whole life policy premium is higher than for a term policy. Here are some of the other features and differences between the two types of policies:

    Policy feature

    • Are you setting up a trust as part of your will?
    • Do you want to leave part of your estate to charity?
    • Do you have existing life insurance, perhaps through your employer?

    Because even though there will be a large cost difference between a term policy and a whole life policy at first, when you consider all the benefits that a whole policy can provide over the course of your life and the certainty of an eventual payout you may feel its a better overall value.

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    Medical Exams For Universal Life Insurance

    Many sellers of universal life insurance use full underwriting, meaning they take time to fully examine your application, verify information, and require that you do a life insurance medical exam. The medical exam usually includes height, weight, blood pressure, and blood and urine samples. Its generally done by a paramedical professional hired by the insurance company, and can be done at home.

    Theres a wide variety of data about you available to insurers, who can use it in pricing policies. This includes data on consumer credit, your prescription drug history, your answers on past individual health and life applications, and your motor vehicle record. Its also common for insurers to request your medical records.

    What Types Of Whole Life Insurance Does American Family Life Insurance Company Offer

    At American Family Life Insurance Company, we understand that every person and family is unique thats why we offer five Whole Life Insurance options you can choose from to meet your specific needs. In addition to DreamSecure Childrens Whole Life Insurance and DreamSecure Senior Whole Life Insurance, we offer:

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    Other Types Of Universal Life Insurance

    Here are other varieties of UL you might come across:

    • Cash accumulation UL: A universal life insurance policy thats specifically designed to build up cash value quickly early on.
    • Current assumption UL: A traditional UL policy designed to offer coverage at a low cost because the death benefit is not guaranteed. Your cash value grows based on the crediting rate offered by the insurer, which can change the rate. You may be able to change the timing or amounts of your payments, or modify the death benefit, but you need to make sure that your policy account contains enough money to cover the policys fees, the cost of insurance, and any loans or withdrawals youve taken. If it doesnt, the policy could lapse. These policies have been under scrutiny recently, after some policyholders got hit with large, unexpected premium increases when their cash value fell below the minimum requirements.

    How Much Does Whole Life Insurance Cost

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    “On average, permanent coverage can be five to 15 times more expensive than a term policy with the same benefit amount. This range can vary based on the length of the term you are comparing and the type of permanent product and features within that product,â says Patrick Hanzel, Advanced Planning Team Lead and Certified Financial Planner at Policygenius. “For example, some permanent products can have additional benefits like cash value accumulation and a growing death benefit. Others can be lower in cost but not include similar benefits.”

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    How To Take Money From Cash Value

    When it comes to taking the cash value from a policy, you generally have a few options. Make sure you understand the policys rules for taking out cash value and all of the financial implications that come with that decision.

    • Withdraw funds from your cash value: You could make a tax-free withdrawal from your policy. However, if you withdraw more cash value than the portion funded by your premium payments, the investment gains you take are taxed as income. Also, taking out cash value will reduce your death benefit and your beneficiaries will receive less.
    • Borrow against your policy: Typically you can borrow tax-free from the cash value of your policy. If you die before the loan and interest are repaid, the outstanding balance will be subtracted from your death benefit.
    • Surrender the policy: If you decide you no longer want or need life insurance, you can contact the insurer to surrender the policy. Youll receive the cash value minus any surrender charge.

    Reasons Why Whole Life Insurance Is A Bad Idea

    Chances are, if you are reading this article, some agent presented the virtues of whole life insurance to you. Or, maybe you purchased a whole life policy and having second thoughts. Truthfully, whole life insurance isnt bad. Really, its not. However, it definitely isnt for everyone. Moreover, for most people, its a bad deal. In this article, we discuss the 3 reasons why whole life insurance is a bad idea to buy. If an agent is telling you that you need whole life insurance without a concrete reason, run, dont walk, away.

    And contact us for our help. We can have an honest discussion and figure out if whole life insurance is right for you. Remember, we discussed how whole life insurance can be a good idea. It can be. Its purchase depends on your situation and what you are trying to accomplish.

    Lets start by giving a brief overview about whole life, and then we will dive into the reasons.

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    Choose Term Life If You:

    • Only need life insurance to replace your income over a certain period, such as the years youre raising children or paying off your mortgage.

    • Want the most affordable coverage.

    • Think you might want permanent life insurance but cant afford it. Most term life policies are convertible to permanent coverage. The deadline for conversion varies by policy.

    • Think you can invest your money better. Buying a cheaper term life policy lets you invest what you would have paid for a whole life policy.

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