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What Is Whole Life Insurance? The Pros And Of The Cons
Whole life insurance, simply put, is a permanent life insurance policy. This means that the coverage lasts for your entire life so long as you continue to pay your insurance premiums. Sometimes, this type of plan is referred to as guaranteed whole life insurance. This is partially because insurers promise to keep the premiums the same over the entirety of the policy. If a policyholder with a whole life insurance policy passes away, and the premiums have been paid, the beneficiaries listed in the policy will receive a death benefit.
How Does A Whole Life Insurance Work?
Whole life insurance policies are policies that cover their holders for their entire life. As long as the premiums are paid, the beneficiaries listed will receive a payout upon the policyholder's death.
Once the policyholder passes away, the beneficiaries need to file a claim with the insurer. After this claim is filed, the circumstances of the policyholder's death will be reviewed. As long as everything is in order, the payout or death benefit will be paid. The death benefit is also sometimes called the face value of the policy.
It is important to let your family members know if they are the beneficiary to your life insurance policy.
The death benefit, also called the face value of the policy, is the payout that the listed beneficiaries receive upon your passing. One of the benefits of a whole life insurance policy is that the payout of the policy is tax-free so long as you are below the federal and state estate exemption levels. The federal exemption level as around $5.5 million and only 18 states impose taxes on estates and inheritances. This means that most people will not hit these exemption levels.
Whole life insurance policies are more expensive than term life insurance, and the death benefit on the policy directly has an impact on that cost. Evaluating your family's needs before purchasing a life insurance policy is critical. Even if you decided to buy a whole life insurance policy, you will want to determine what the plan will be used for to make sure that you have enough benefit to take care of those needs.
In addition to determining what death benefit and life insurance type best suits your needs, you will want to be aware of the premium costs and how often they need to be paid. Premiums for whole life insurance policies are paid for the entire life of the plan. It is possible to pay more earlier in the policy’s life to make sure that the plan does not lapse later on. This is an option that can benefit people who have high incomes and can cover the costs. It allows them to lock in coverage for their family no matter what happens to their income levels later on.
Another element of permanent life insurance policies is the cash value component. A whole life insurance policy gains in cash value over time. This is not added to the face value of the policy, which is what your beneficiaries receive when you pass away. Instead, it is what you get when you surrender the policy to the insurer. Some plans allow people to borrow or withdraw from the cash value of their life insurance policy.
While not as common, some whole life insurance policies are owned by the policyholders. These policies can pay dividends if the insurance provider brings in more money than it pays out.
Another whole life insurance policy that is available is called guaranteed acceptance whole life insurance. This policy is more expensive than most of the other policies in terms of premiums, and the death benefit for these policies will typically be minimal. It does offer the benefits of being able to skip the detailed health questions and medical examinations that come with many other types of policy. These policies also tend to have a restricted period near the start, meaning the beneficiaries will not receive the full payout if you pass away during this period. This option is usually not chosen by people unless they have concerns regarding their ability to get coverage otherwise.
The Pros And Cons Of Whole Life Insurance
The benefits of whole life insurance policies can be worth considering for many people. The cash value of a whole life insurance policy his tax-deferred and is guaranteed growth. Many of them also provide the opportunity to take out tax-free loans that use the cash value of the policy as collateral. Even the dividends of whole life insurance policies, if they are paid out, are free of income tax since they are the return of premium.
Another benefit of whole life insurance policies is that your premiums are guaranteed to stay at a fixed rate, regardless of whether you pay. All permanent life insurance policies, including whole life insurance, offer lifelong coverage so long as the premiums are paid. Additionally, if your health changes in the future you will remain covered and will not need to take additional health assessments or medical examinations.
For people to purchase a whole life insurance policy, the policy can be surrendered to receive its cash value back from the insurer. This can be a benefit for people whose financial situation changes.
Of course, there are some downsides to whole life insurance as well.
Premiums for whole life insurance policies are significantly higher than those of term life insurance. For people that will not likely be able to take advantage of all of the benefits of the plan, whole life insurance may not be the best choice.
Even though there is a guaranteed growth in the cash value of the policy that you get, the growth can end up being a lot less than other possible investment types. Take care to determine what fees are applied and how the whole life insurance policies you are looking at tend to perform.
This leads to another downside that can come from a whole life insurance policy. While they offer many features and benefits, they can be quite complex. Many people recommend utilizing a professional to take full advantage of the benefits. This is because navigating the benefits of this type of plan can be complicated.
Should I Buy Whole Life Insurance?
Consulting agents at General Insurance is one of the best ways to get more details about whole life insurance policies and whether or not they are a good fit for you. Depending on what your financial objectives are, this type of permanent life insurance policy may be an excellent fit for you. It provides coverage for your entire life and can help if you have expenses that will be around for the entirety of your life which may be passed along to your children.