If you are looking for life insurance that suits your needs, you should consider whole life insurance. In addition, if you are wondering what whole life insurance is and want to know more. Then this article is for you, so relax as we go deeper into whole life insurance. This article aims to help you have a well-informed decision that one day can help you determine the future of your beloved family. Happy Reading !!!
The first thing people should know about whole life insurance is a type of permanent life insurance with lifetime benefits. Permanent life insurance is the counterpart of the term life insurance. Permanent life insurance doesn’t have an expiration, in other words there’s a guaranteed death benefit payout.
Whole life insurance with lifetime benefits is one of the reasons why many people use it. They also use it as a strong foundational asset, in addition people want to make sure that their families or their loved ones are protected.
What is whole life insurance? How does it work?
Unlike term life insurance (click here to know more about term life), which only offers a limited time of coverage. Whole life insurance doesn’t have an expiration, as it spans over the entire lifetime of the insured. If you keep paying your premium, then there’s 100% assurance that the insurer will pay out when you pass away.
Whole life insurance actually gives peace of mind to clients. Having said that, continuing the family’s financial stability and overall well-being are now possible. In addition, anyone can continue the legacy of their family in exchange for regularly paid premium payments. Whole life insurance also provides lifetime benefits, an example of this is a permanent death benefit. Take note that death benefit will go directly to the beneficiaries and it’s income tax free.
Whole life insurance policy includes cash value alongside the death benefit. Premiums for whole life insurance are higher than the term life insurance. The reason why premiums are higher is because some portion of the money you pay is going directly into the cash value
Growing cash value is one of the essential components of whole life insurance. In which the policyholder can borrow from or invest it throughout their lifetime. This cash value can also be used as a way of setting up tax-free inheritance.
The three main components
Firstly, Premiums. The premiums in simple terms are the money you pay to the insurance company every month. It’s a fixed amount wherein it doesn’t change its value throughout the lifetime of the client in exchange for death benefit.
Second, the death benefit. It is an assistance received by the beneficiaries. Beneficiaries are usually the family members of the policyholder. The death benefit usually plays around $500,000 and some are even opting in for larger amounts based on their financial stability.
Lastly, Cash value. The cash value is also known as a living benefit by some people. Cash value works by taking some amount in the premiums you pay and put it directly into building up a cash value. This is one of the reasons why whole life insurance is different from other types of life insurance, especially with term life insurance. Take note that between your first 10 to 20 years of coverage, the policy’s cash value is quite small due to the costs of coverage and some fees.
In addition, cash values possess “tax deferred”, wherein it makes the money grow faster. It is because there’s no deduction coming from the taxes or in simple words whole life insurance is income tax free.
Key points of this article
- Whole life insurance is a type of permanent life insurance, wherein it consists of 3 main components.
- Premiums, Death Benefit and cash values are the three main components of whole life insurance.
- When a policyholder pays their premium, automatically some portion of it will go directly to build up cash value and to the death benefit.
- Cash values possess tax deferred that makes it grow faster.