In your otherwise busy lifestyle, there comes a time when you wonder about taking an insurance policy- it could be to safeguard your family or just to have a secure retirement plan. But when you sit down to Google about a policy that’ll offer the protection you desire, you’re immediately bombarded with terms you may not understand.
There is more than one type of insurance policy so naturally, it results in confusion. But if you find yourself wondering about Whole Life insurance, then we may be able to guide you and put an end to your confusion.
What is a Whole Life insurance policy?
Whole life insurance is a type of permanent life insurance, which means the insured person is covered for the duration of their life as long as premiums are paid on time. Permanent life insurance is different than term life insurance, which covers the insured person for a set amount of time (usually between 10 and 30 years).
Whole life insurance is the most common type of permanent life insurance policy that people purchase. They also cost more because they include an extra savings component, which is referred to as the “cash value”, which brings us to the next question, is whole life insurance worth it? Read on.
How do they work?
There are 3 major components of a Whole Life insurance policy:
Death Benefit: As the name suggests, the death benefit is a tax-free amount of cash which is paid out by the insurance company after you die. For instance, let’s say you bought a whole life insurance policy with $100,000 in coverage, then that $100,000 becomes the death benefit.
Beneficiary: A person that receives the death benefit is the beneficiary. Anyone can be your beneficiary- be it a spouse, children, a business partner, a friend, trust or organization etc.
Premiums: The amount of money you pay for your whole life insurance policy – payment could be made monthly or annually.
As the name implies, a Whole Life insurance policy lasts for your life as long as the premiums are being paid on time. That means if you buy it when you’re 30 and continue paying your premiums until you die, your family will receive the death benefit.
How does cash value work?
Cash value is your ideal volatility buffer for uncertain economic times and financial emergencies. That means a whole life policy can serve as a source of emergency funds for you if something goes wrong, or you may be able to take out a loan against the policy.
Over time, the cash value of your policy increases, and you may have the option to withdraw funds or borrow against it. The rules on how and when you can do this differ from company to company and the policies they offer.
The cash value of a policy earns interest and grows over time. Life insurance companies often guarantee a certain amount of growth every year and that is why people flocked to buy whole life insurance following the 2008 recession.
Hope the above information answers your burning question – is whole life insurance worth it?
You can always consult an agent for guidance and choose a policy that suits you the best.