WHOLE LIFE INSURANCE
1. WHOLE LIFE INSURANCE 101
As its name suggests, whole life insurance can cover you for your entire life. That’s in contrast to term insurance, which covers you for a designated period of time, such as 10, 20, or 30 years. If you still need life insurance when the term ends, you have to find new coverage
2. KEY BENEFITS:
Permanency: As long as you keep up with the premiums, a whole life policy can last you for the rest of your life. A term policy, on the other hand, is good for a certain number of years, after which you’ll typically have to replace it if you still need insurance. By then you may have more difficulty buying insurance—or getting it an affordable price—due to your age or health issues. However, it’s worth noting that people whose term policies expire often have more options than they realize for retaining some kind of insurance.
Predictability: With a whole life policy, your premiums stay the same, as does your death benefit. With either form of variable life insurance, however, you will be subject to the ups and downs of the markets. People who are uncomfortable with investment risk and want a permanent policy may do better with a whole life one.
Tax breaks: As with the other forms of permanent insurance, the cash value in a whole life policy grows tax deferred. By contrast, if that money were in a regular, non-retirement investment account, its interest and dividends would be taxed every year. What’s more, life insurance proceeds (the death benefit that goes to the beneficiary) are generally not taxable, so those investment gains may escape taxation altogether.4
Potential loan collateral: As mentioned above, policyholders can borrow against the cash value of their policies after a certain point. That could be useful in a financial emergency for someone who has exhausted all other sources for borrowing. And unlike other kinds of loans, they don’t have to pay the money back if they can’t or choose not to. However, there are some major caveats here, one of which is that the policy’s death benefit will be reduced accordingly if they die before paying it back.