What is whole life insurance: the benefits explained


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You don’t want to leave your family without any resources to deal with the financial consequences of your death, so it’s important to invest in a life insurance policy, usually term life insurance or whole life insurance. After all, life insurance can replace your income for years or even decades after you’ve left, and the death benefit from your policy can be used to cover your final expenses and your family’s accumulated debts.

Traditional term life insurance is the most popular type of coverage, but some consumers need more than a policy that only lasts 10 to 30 years. An alternative is to purchase whole life insurance that lasts – you guessed it – your lifetime.

Whether whole life insurance is right for you depends on your needs and goals, so keep reading to learn more about whole life insurance, how this type of coverage works, and who it’s right for. better.

Whole life insurance is a type of permanent life insurance that should last until the day you die, regardless of your age. According to Insurance Information InstituteWhole life insurance is the most commonly purchased type of permanent life insurance. Other types of permanent coverage include variable life insurance and universal life insurance.

With most whole life policies, consumers pay the same premium for the life of their policy. During this time, the death benefit generally remains the same, regardless of how long you live. Obviously, this means that while whole life insurance premiums don’t get more expensive with age, the overall total cost of your whole life insurance policy increases more and more as you get older and need to continue to pay another premium each month.

But your family will receive the death benefit from your policy no matter how long you live, unlike term life insurance which only lasts for a set period of time. And whole life policies also create cash value, and that cash value increases over time as you pay your premiums.

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If you want life insurance that lasts your lifetime and also creates cash value, you can expect to pay a lot more for coverage than for a more restrictive policy. In fact, a whole life insurance policy could easily have premiums 10 times higher than what you would pay for the same amount of term life insurance coverage.

How much will whole life insurance cost you? Although rates vary from insurer to insurer, according to recent research on USAA, a 30-year-old woman living in New York City in excellent health could benefit from $250,000 whole life insurance for about $143 a month. Meanwhile, prices soar to over $277 per month for twice the coverage.

Compare these prices to term life insurance, which is much cheaper overall. With an online provider like haven of lifethe same woman could buy a 20-year term insurance policy worth $250,000 for as little as $12 a month, or a $500,000 policy with the same term for as little as $17 a month .

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Whole life insurance costs so much more than term life insurance, why do people buy it? Well, buying whole life insurance has many advantages, starting with the fact that the death benefit is guaranteed for as long as you pay your premiums.

If you’re worried that your loved ones will be struggling financially or won’t have enough money for your final expenses when you die, having a guaranteed death benefit for your lifetime is a huge benefit that may be worth the cost. additional.

Also, while your premiums may seem expensive when you’re young and healthy, they could be relatively affordable compared to your death benefit once you reach old age. This is another big advantage of whole life insurance: your premiums will always stay the same, even as your age increases and your health declines.

And don’t forget that whole life comes with a savings component that increases cash value. The cash value of your policy increases each month you pay for whole life insurance, since a portion of your premium is set aside. In most cases, this amount becomes accessible for you to use for whatever reason.

Meanwhile, some whole life insurance companies also pay dividends. The dividends you receive may be added to the cash value of your policy. Depending on the insurer, you can even use your participations to pay part or all of your insurance premiums.

Finally, whole life insurance has tax advantages, including the fact that your beneficiaries will likely receive your death benefit without having to pay tax on it. If you’re a wealthy individual who wants to pass on tax-free money to your heirs, a whole life insurance policy can help you do just that.

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Generally speaking, the cash value growth you build into your policy is available tax-free during your lifetime. Many clients also borrow against the cash value of their whole life insurance policies, which they can do without paying income tax. However, the rules regarding how and when you access your policy’s cash value may vary, so you’ll need to check the details with your insurer.

Plus, you’re never stuck with a whole life insurance policy. You can surrender your policy at any time, stop paying your premiums and, in most cases, withdraw the accumulated cash value. However, you will likely owe income tax on any amounts you receive this way, so be sure to speak with your whole life insurance agent or tax advisor before taking this step.

As you prepare to choose a whole life insurance policy, be sure to invest the time and effort in shopping around. Compare whole life insurance premiums with at least three different life insurance companies and also find out what it would cost for a similar amount of term life insurance coverage.

Ultimately, whole life insurance is more likely to be used by wealthy individuals since the premiums are much more expensive, but it can be a boon for anyone who wants to make sure there is money left over for their heirs. So while you’ll pay more for permanent life insurance, the peace of mind may be worth the cost.

Click here to compare free life insurance plans using Policygenius.

Not sure if whole life insurance is right for you? Read CNN Underscored’s guide to the different types of life insurance.

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