There are several strategies to provide for your family’s financial stability. You could, for instance, build a 529 college fund, buy real estate, or establish a trust. However, whole life insurance can be a wise investment if you seek a financial vehicle with assured profits and a sizeable lump sum payment for your dependents. Whole life insurance allows you to get dividends and earn interest on savings.

What is whole life insurance?

In contrast to term life insurance, a whole life insurance policy offers coverage for the duration of the policyholder’s life, so the death benefit never expires. Your insurance company adds a portion of the monthly premium paid by the policyholder to a cash savings account. The savings account builds money over time with interest. Longer terms can increase protection, but the cost is higher than other life insurance types.

• Whole life insurance

This policy will pay a lump sum at the end of the policyholder’s life as long as premium payments are made. Additionally, the premiums go toward the policy’s cash value savings account, which typically increases by 1% to 2% annually.

Consequently, getting a whole life insurance policy earlier in life enables your funds to grow. Whole life insurance funds are not subject to taxation until the policy pays out cash.

• Guaranteed issue life insurance

Most life insurance policies demand medical examinations and may deny coverage to specific customers due to health issues or ways of life. However, everyone who applies for guaranteed issue life insurance gets accepted. The small death benefit is a disadvantage. The typical payout for these plans is a maximum of $20,000. Additionally, not all policies build up monetary value; even then, the money might only be accessible as a loan.

• Universal life insurance

This insurance offers cash savings accounts, much like your whole life. However, if their cash value account increases to a specific level, universal life policyholders may be able to change their death benefit or lower their monthly premiums. Additionally, the savings account can invest in a stock index, providing extra room for growth.

Is Life Insurance a Smart Financial Move?

In terms of return on investment, life insurance is one of the least profitable assets. For instance, an employer-sponsored 401(k) normally grows at a rate between 5% and 8%, and an individual retirement account (IRA) is predicted to return 7% to 10%. However, with life insurance, your potential growth is only 2%. Therefore, before considering alternative investment options, it is advised to contribute the maximum allowed to your IRA or 401(k).

Depending on your specific situation, life insurance may be a good idea if you have money left over after making the maximum contribution to your retirement account. Although it isn’t technically an investment, it can still be a smart financial move. Whole life insurance can be a powerful addition to your financial strategy because it provides a tax-deferred cash value account. Additionally, the death benefit safeguards your beneficiaries, enabling you to care for your children or other descendants even if you run out of money in retirement.

Whole life insurance can also be wise if you don’t take many risks. Your cash savings account will never lose value since interest drives its growth, not the stock market. Additionally, your insurance provider may send out yearly dividends, which are cash payments that you can use for whatever you like or invest in. 

How to Get at Your Whole Life Policy’s Cash Value?

You can access the cash value of your whole life insurance policy as a source of funds for any need. You may, for instance, withdraw the money required to cover three to six months’ worth of living expenses and start an emergency fund. You might also utilize the savings account to cover all or part of your life insurance payment, invest in other assets, or both.

It’s also good to consider the cons of using your complete life insurance policy’s cash value. The withdrawal will probably be taxed by the government that year as income. Additionally, taking significant withdrawals may reduce your death benefit. Additionally, utilizing your cash worth to pay premiums over the long term may not be enough, placing your coverage at risk of expiring due to late payments. Therefore, it’s advised to check your account to ensure your premium is paid routinely and your death benefit is unaffected if you intend to spend the cash value in your policy.

You can surrender your entire life insurance policy and get the full value of your cash savings if you’ve concluded that retaining it is no longer in your best interest. Remember that canceling your policy will only allow you access to the monies in your savings account because the death benefit is only payable following the policyholder’s passing.

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About Kathy
Kathy Hollingsworth
Licensed Agent Federal Educators of America