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What Is Whole Life Insurance Good For
Above all, getting a life insurance policy is a responsible part of being a father, spouse or a caregiver for a parent. Obviously, there are no guarantees for tomorrow and in most cases, if you die your paycheck dies with you. When thinking about how many different coverage options there are it can be kind of overwhelming.
In fact, there are 48 different variations of life insurance that fall under three main categories:
- Whole Life (Permanent)
- Term Life
- Universal Life
It’s important to choose the right one as they all differ in price and options. We will focus on whole life in this article and the very many advantages it may have but also the disadvantages of whole life insurance.
For instance, it is more expensive than term life as it is for your entire life. It is also a big commission product for agents and more of a bigger money maker for the carrier.
In my opinion, these are the main things whole life is really geared for:
- Burial and Final Expense
- Child Life Insurance
- Build Cash Value (If Over-funded)
- Tax-Free Retirement
- College Savings Plan (529 Plan)
When Should You Buy Whole Life Insurance
Whole Life Insurance… With so many life insurance options out there, deciding on a policy can be difficult.
First, you’ll need to choose between Whole Life insurance and term life insurance. (Such as 20, 30 year term life insurance.) Above all, life insurance is a necessity for people who want to protect their family.
Purchasing a life insurance policy is an extremely important financial decision. It’s best to be very well-informed before deciding on a policy.
Whether you are looking to purchase a half million dollar policy or a $1,000,000 dollar policy, it is important to be educated in the art of life insurance. There are many factors to consider before finding the perfect plan for you.
For example, such as your budget and how long the coverage you need. Also, how many people are financially dependent on you, etc.
Remember, it’s not about replacing your income after you die. Life insurance protects your family from inheriting your debts, mortgages, and final expenses.
Although it’s not fun thinking about one’s own death, life insurance can bring you peace of mind. Knowing that your family will be OK no matter what happens to you is most important.
We will discuss permanent life insurance plans, companies, and how to get the best permanent life insurance rates. Let’s continue…
Does Whole Life Insurance Expire
When it comes to WL coverage the death benefit does not expire unless of course the insured or owner lets the policy lapse. For instance, if you have been paying into a policy for decades and accumulate cash value, then the policy would use the cash value to pay the premiums.
The downside to this is if the cash value is depleted then the policy will lapse and the death benefit is voided.
What Happens To Cash Value In Whole Life Policy At Death
There is a major misconception that some consumers have when owning a whole life insurance policy.
First, they think that not only does the death benefit payout, but the beneficiary gets the cash value of the policy as well. That is not the case!!
The insurance carrier will take in the cash value and the primary beneficiary will be paid the death benefit minus any debts and fees.
Is Whole Life Insurance A Good Investment For A Child
Life insurance for children is usually purchased not because you anticipate the death of a child.
Which is by far the most horrific process a parent must go through, me being one of them, (RIP my Emma).
Child Life insurance is purchased because it protects that child from not being able to get life insurance due to an illness.
When I approach a client with children and/or grandchildren, it’s more so to protect them from never being in the position of not being able to get the insurance they need.
For Instance, if a child develops Type 1 diabetes at an early age, or develops MS then if they have the coverage they do not have to prove insurability in the future when they want to increase coverage.
This is called a Guaranteed Insurability Rider!
The carriers we use primarily for children is Gerber and Mutual Of Omaha.
- Issue Ages 14 days to 17 years
- Face Amounts $5,000 – $50,000
- Level Death Benefit
- Underwriting Class Standard
- Riders: Guaranteed Insurability Rider, Waiver of Premium Due to Death of Owner
- Child-size premiums–that never increase
- Coverage doubles automatically at age 18
- Guaranteed future insurability for your child
- Coverage available up to $50,000 for children 14 days to 14 years old
- Four opportunities to buy additional insurance at ages 21, 25, 30, 35, 40,
How Does Whole Life Insurance Work As An Investment
This is a great question!! There are many strategies that can be implemented when purchasing a whole life policy.
In fact, the most essential part of this type of policy is there is a cash account and is basically an investment account. This account has a guaranteed interest rate of between 1.5%-2.5% depending on the carrier of product.
If over the years you continually pay into it, the guaranteed interest rate should be enough to equal the death benefit at age 100.
This is called an endowment and in some case’s the carrier will just cut you a check for the face amount at that age.
My opinion on buying this type of permanent coverage is you are not even making enough to cover inflation (3.25% annually), so you are losing 1-2% of REAL money!
It would be better to purchase a low-cost life insurance policy like a term and invest the difference in mutual funds!
Custom Whole Life Insurance
The only time I look at whole life in a favorable light is if it is for a child, a senior for final expense, or my favorite a custom policy like a single pay, 7 year pay or 20 year pay.
This is when you overfund the policy in the early years, pay a higher premium where the policy interest earned will pay for itself!
One concept of this type of permanent policy is the infinite banking concept or whole life insurance banking.
For instance, this is a whole life policy that is normally through mutual companies that offer to pay dividends when they have strong financial results in a combination with a low number of claims. These insurers offer other benefits to help the cash flow of the policy via paid up additions.
This type of strategy, when structured right can compound interest, dividends and paid-up additions that can be very helpful when retirements come around.
This also can provide a tax-free income at retirement. The whole life insurance tax benefits are that when you retire you will have accumulated a substantial amount of cash value because of the interest, dividends and paid up additions.
The result is you can be your own bank!! Buy simply borrowing from your own cash value you will not have to pay taxes because it is a loan to yourself! Some call it a emergency fund!
What Is Whole Life Insurance Dividends
As explained above briefly, dividends are the portion of the mutual carriers’ profits that are paid to policyholders, unlike a stock company that declares a dividend to stockholders.
Some of these carriers offer non-guaranteed dividends that may offer lower premiums. These are also called participating whole life insurance.
When looking at this from a tax standpoint, are life insurance dividends taxable?
If the dividends exceed the amount of premium paid then you may be liable for taxes. So withdrawing dividends from life insurance should be something you talk over with your accountant.
Should I Get Term Life Insurance Or Whole Life Insurance
Deciding between term life insurance and whole life insurance is the first step. While whole life insurance has pricier premiums, they’ll stay consistent for your entire life.
On the other hand, term life insurance premiums will be far more expensive if you end up purchasing another plan later in life. Remember, when you are older, you’re considered a higher risk.
Another perk of permanent life insurance is that some of the money that you pay goes into a cash account. In addition, this allows you to accumulate cash value over time.
It’s a bit like collecting interest. This cash value is available if necessary. But otherwise, it will pay to your family upon death.
Can You Convert Whole Life Insurance To Term
No matter when you bought your policy you can convert it to term life. The main reason to do this is that term is a lot cheaper than WL and if you have cash value you can invest it for retirement.
These options are usually found under “Non-Forfeiture options” in your policy.
BEST PERMANENT LIFE INSURANCE POLICY
Don’t rush into buying a permanent life insurance plan yet — for such an important financial decision, it’s essential that you weigh out your options.
Understand that a whole life insurance policy is really an investment. It takes years before the policy really starts paying off. Permanent life insurance may not be a viable option for those on a tight budget.
Whole life policies offer fixed premiums, a guaranteed death benefit. Whole life coverage is designed to build tax-deferred cash value.
In fact, permanent life insurance provides coverage for the insured’s entire life. As long as premiums are paid and the policy has not been surrendered.
BEST PERMANENT LIFE INSURANCE COMPANIES
When looking at purchasing a WL policy you want to make sure you receive exactly what will achieve your goals. Here are a few carriers that we look at when determining what class of whole life that will be best.
- Mutual Of Omaha
- American National
- Penn Mutual
HOW TO GET THE BEST WHOLE LIFE INSURANCE RATES
We have plenty of tips to help you get better rates from the best life insurance companies.
Although whole life plans are not your cheapest life insurance option, there are measures you can take to lower the prices.
Check out the list below for some suggestions on how to lower the cost of your permanent life insurance:
For the lowest price whole life insurance…
Quit Smoking — Cutting out all tobacco products before applying for coverage can cut the price of your premiums in half. This is one of the most effective ways to lower the cost of your life insurance. Remember, getting life insurance for smokers raises rates 3-4 times.
Diet & Exercise — Eating healthier and exercising before applying for coverage can get you a much better quote. Taking measures to improve your overall health will go a long way. Also, when the life insurance companies are assessing your level of risk determining the approved rate.
Shop Around — One of the best ways to get cheap coverage is by receiving several quotes before deciding on a policy. The medical underwriting for life insurance companies varies drastically. Thus, the assessment of your risk level will also vary from company to company.
BEST VALUE ~APPROVAL PROCESS
- Simplified issue: You answer some health questions but you don’t have to take a medical exam.
- Guaranteed issue: There are no health questions or a medical exam and you’ll be accepted.
- Fully underwritten: You will be required to fill out a lengthy application and take a medical exam. If you have some health issues, your independent agent can find the best price by applying you for a fully underwritten policy.
*Keep in mind, Simplified issue and Guaranteed issue policies don’t pay the full death benefit if you die within the first few years of coverage.
PROS AND CONS OF PERMANENT LIFE INSURANCE
Clients may find whole life attractive because it offers coverage for a length of time. It is an attractive choice for “permanent” insurance needs, see the following:
- Burial expenses
- Estate planning
- Surviving spouse income
- Supplement your retirement income
Clients may find whole life a less favorable choice, due to the higher premiums, see below:
- Large debts
- Children’s needs and through the dependency years
- Young families with large needs /limited income
Whole Life Insurance
WHY SHOULD I HIRE AN INDEPENDENT INSURANCE AGENT
More importantly, Why should you hire Danny Ray?
Working with an independent insurance agent can be a great investment. This type of life agent is very knowledgeable about the life insurance industry. Most important, they’ll be able to connect you with the top life insurance companies.
An independent insurance agent can save you loads of money on your insurance policy. They’ll have an idea of which companies are likely to offer you the lowest prices.
In fact, this can save you a lot of the time and hassle that you would need to spend on comparing quotes.
It’s also helpful to have an expert that can answer your questions and help you make the best decisions. They’ll help you decide between term life insurance and whole life insurance.
An independent agent will help you calculate how much life insurance you’ll need. While it’s important to be patient before choosing a policy, it’s risky to put off buying life insurance.
Keep in mind, Danny specializes in all aspects of life insurance. He is greatly knowledgeable in key man life insurance, business life insurance, in addition, he can help you choose the best cheap affordable life insurance no matter what type of policy you are looking for.
If you have any questions, please feel free to contact us at PinnacleQuote (855)380-3300.
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