It can be hard to think about life insurance. It is a complicated subject, and you have many options. Plus, you might feel uncomfortable when it comes to planning for the end of your life.
Although many people believe that life insurance has value for them, they might not be certain what the best kind for them is. Whole life is a good option for many people, but there are still a lot of options to choose from. Keep reading to find out more about your options.
About Whole Life Insurance
Getting whole life insurance means that you will have a permanent form of insurance. This will stay in force as long as you keep paying your premiums. When you apply for it at first, you agree that you will be bound by a contract where the company will pay the beneficiary a death benefit once you die.
You can choose how much you want to be covered for, and the amount you pay each month will be calculated depending on your health, age, and gender. But as long as you keep paying the premiums, the insurance will be valid. The premiums will not change based on your age or health.
Unlike term insurance, a whole policy will not expire. Instead, it will still be valid until you cancel it or pass away.
The premiums that you pay toward the policy can generate a cash value. You can use this for certain conditions.
You can withdraw the cash value as a loan, or you can use it to cover the premiums of the insurance. You need to repay any loans before passing away. Otherwise, that amount will be taken out of the death benefit.
What the Policy Covers
This kind of policy can cover the owner’s entire life. If you have this kind of policy, then your beneficiaries can get a cash payment once you pass away.
The premiums and costs are more expensive than term life because the insurer insures you for your whole life, not just a certain amount of time. Once you get older, it can cost more money to insure you since you are more likely to die.
About the Cash Value
If you were wondering if whole life has a cash value, the answer is yes. This is one of the few kinds of insurance policies you can get that has a cash value to it. This is generated when you pay your premiums. If you pay more premiums, then you will get more cash value to it.
The advantage of having a cash value is that you can withdraw it as a policy loan. For example, perhaps you have been paying the premiums for a long time and suddenly have an unexpected expense.
As long as you pay off the interest and loan, you will still get the full coverage of the policy paid to the beneficiary. However, if you do not pay the loan off, then the death benefit will go down by the amount of your loan.
Using It as an Investment
Think of whole life policies as being a type of investment for you. This is because of the cash value of it.
However, you should not think of just any kind of life insurance as a type of investment. A true investment is regulated heavily and has safeguards that will protect the investor. Life insurance does have some regulations, but those do not have much to do with finances.
Instead, think of this kind of insurance as being a safeguard that will protect your family from financial difficulties if you were to pass away. With the death benefit, they will not need to use up their investments or savings to support themselves.
Accessing Cash From the Policy
The longer you have the policy for, the more cash value it will have. Then you have more options for getting a cash payment. The value of this policy lets you get money through a loan, surrender, or withdrawal. Or you can use this value to pay future premiums on the policy.
If the policy has been around for a couple of years and has cash value, you might choose to cancel your policy. Then you can get a cash payment for the surrender value.
By doing this, you give up the coverage and will get the value minus any applicable fees. When you cancel the policy like this, your beneficiaries will not get anything from the policy after your death.
This might give you money that is needed, but it should be one of the last resorts unless you have enough life insurance in other places.
You can often take a certain amount of money out of the policy. Often, the withdrawals up to the basis of the policy can’t be taxed. The policy basis is the amount of money that you have paid to the policy.
Any withdrawals that are greater than this will be taxed at the applicable income tax rate. The amount you take out will reduce the death benefit a bit.
With a cash-value policy, you can often borrow against the amount. However, you will not borrow against the policy itself.
You will instead borrow money from the policy issuer, using the policy as your collateral. Depending on your policy’s terms, your loan might have interest on it. Unless you pay your interest yourself, then it will be applied toward the balance of the loan.
If you do not pay the full amount of the loan back, then that amount will be deducted from the death benefit. Plus, there is a maximum amount in loans you can get from the policy.
You may decide that whole life insurance is right for you if you want to be able to access the money for another source. If you do cash out the policy, you will want to avoid not having coverage. Do your research on other options for you.