Watch Related Videos
comments
When you are shopping for life insurance, it is easy to think that your best choice is the policy with the lowest price, but there are several reasons why it is worth your while to pay a little bit more to get a whole life insurance policy instead.
What is Whole Life Insurance?
Whole life insurance is insurance, which, like its name implies, provides a benefit throughout your entire life unlike term insurance, which expires after a set period of time. With term life insurance, you pay premiums for ten or twenty years, but if you do not die within the specified period, that money is lost and there is no benefit paid. With whole life insurance, as long as you pay your premiums, you are guaranteed to receive the death benefit in your policy.
As well, whole life insurance builds cash value (the difference between the cost of insurance and the amount you invest in the policy) that can work as an asset and long term investment for your family.
There are three things everyone should understand about whole life insurance:
- Tax Benefits. Investing in a whole life insurance policy provides both immediate and long term tax benefits. Immediate benefits are in the form of tax deferred income, because what you pay in to your whole life policy reduces your current tax burden. The long term benefits to your taxes are seen in multiple ways. First, if the policy pays out a death benefit, that payment is usually tax free. Second, if you need quick access to cash, you can take a loan against the cash value of your policy without paying taxes on the money. Third, you can invest in your children's whole life policies to provide them with access to assets without taxation.
- Wise Spending. When you pay the premiums on your whole life policy, a portion of your payment works to increase the cash value of the policy. That cash value can help you put your kids through college, open your own business, or be used as collateral for loans. Instead of throwing away money on a term policy that may expire before you die and not have any cash value, you can be building an investment as you go.
- Protection. Even if you get sick or become disabled, your insurance benefit will remain in place with your whole life policy. If at any point you decide you need to cash out the policy to have immediate access to the cash value you've built, you can do so with relative ease.
