Investing in whole life insurance is one way to protect your loved ones in the event of your death. Whole life insurance provides a savings benefit and a risk-free avenue of providing for family members after you die.
Identification
Whole life insurance is different from term life insurance in that whole life insurance provides for you during your entire life and builds cash value. You have lump sum, yearly or monthly premium payment options throughout the whole life insurance policy span. Whole life insurance enables portions of the premium payments you make to be put toward the monetary value of the insurance policy.
Types
There are three main types of whole life insurance that you can choose from. Traditional coverage guarantees you minimum rates of return on the insurance policy cash value. Cash withdrawals are allowed as down payments on a home if you are a first-time house purchaser. Interest-sensitive whole insurance policy enables a variable interest rate on your cash value, but provides you the option to change the amount of your death benefit without increasing the amount of premium you pay. Any cash value you build up in this type of whole insurance can suffer greatly during harsh economic times. Single premium whole insurance enables you to pay a lump sum premium up front. No premium payments will be required after you make this one payment. Cash value will accrue based on the interest rate the policy is set at.
Benefits
A whole life insurance policy acts as a shelter from taxes because no taxes are deducted from this insurance policy's cash value. The tax savings along with the interest accrued from whole life insurance make this type of coverage a form of savings and investment in one policy. Another benefit of whole life insurance is that your premium amount in this type of coverage stays the same for the entire life of the policy.
Considerations
The amount of whole life insurance coverage you should invest in depends on the amount of your current assets and expenses. Your current assets include your savings, salary, investments and anticipated social security benefits. Specific expenses you should take into consideration when deciding on whole life insurance policy are food, utilities, mortgage, vacations and education-related costs. Take into consideration the amount of money it would cost to support your beneficiaries for a specific number of years to determine the amount of insurance you need.
Time Frame
Some whole life insurance policies provide you the option to pay premiums over the course of a certain amount of years, or until you reach a specific age. Because the payment term for whole life insurance policies is shorter, your premium payments will be greater than if you were to pay your whole life insurance off over the course of your entire life.
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