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What is Whole life insurance

A whole life insurance policy will stay with you for a lifetime, and the premium remains the same. Your price for the policy will not change or decrease, plus it has a growing cash value. All of these benefits make this coverage more expensive than a term life insurance policy. It is a security blanket for its policyholders and their families for as long as the insured lives.

It is an agreement or contract between the policyholder and the insurance provider or the insurer. Within the agreement, the policyholder has to pay for premiums. After the insured’s death, beneficiaries may apply for a claim and get the money from the policy. However, the contract may differ according to the insurance provider. Some amendments, like critical or terminal illness, loss of some body parts, and disability of the insured, may trigger payment for the benefits.

Inside the contract, there are some boundaries set by the insurer for the insured. These are omissions that are written within the contract fine print. It limits the insurer’s obligations in case of fraud, riot, war, suicide, and other civil turmoil.

KEY TAKEAWAYS

  • Whole life insurance plans cost more than term life but provide lots of benefits to the insured.
  • Polices within whole life insurance lasts for the entire life of the insured. The amount of the premium will not change, and coverage will not decrease.
  • It has a cash value that grows that is useful for various purposes like paying for the policy. 

Is a whole life insurance policy best for me

If you are looking to have the convenience of cash value that whole life insurance brings to the table and pay a little more for it, than it might be for you if:

  1. You like the cash value opportunities of the policy
  2. Paying more in your younger years to lock in rates and guarantee health approvals
  3. Want a lifetime policy that locks in premium and coverage without increasing prices

What does whole life insurance cost

As of this year, 2021, whole life insurance cost 30% to 40% more than term life insurance in a dollar to dollar comparison.

However, insurance policies’ prices may vary according to several factors, such as age, health status, and coverage. There are instances that a client may only be qualified to apply for a guaranteed issue policy because of his/her health condition. The guaranteed issue is a type of whole life insurance policy but for a client who cannot qualify for regular whole life insurance coverage and other insurance policies.

Whole life insurance rates by age

AGE

COVERAGE

COST

20

$100,000

$46.13

30

$100,000

$67.52

40

$100,000

$104.86

50

$100,000

$161.60

60

$100,000

$264.82

Sample rates calculated based on the health of non-smokers in Kentucky, with excellent health condition. Get your quote now to calculate your price.

Additional  whole life insurance policy features

  • It offers coverage for the entire lifetime of the insured.
  • The policy provides both death benefits and a cash value that accumulates throughout the life plan’s length. 
  • A client applying for whole life insurance usually must undergo a medical examination and rigorous underwriting process.
  • It is possible to acquire a whole life insurance policy without a medical exam for a more expensive premium.
  • A modest cash value can be built within the period of 12 to 15 years.
  • It is the right choice for people who need estate planning. 
  • Some of the money from the cash value can be borrowed or withdrawn during the length of the policy.
  • Comparing term to whole life insurance has a higher cost for the same amount of coverage with term life. 

Important factors considering whole life insurance

Whole life insurance is a policy with lots of essential factors to keep in mind. Hence, it is not as easy to get like term life insurance. Therefore, a client and the insurer must carefully if both parties are willing to agree to the contract. The following are essential factors that insurers consider before granting a whole life insurance policy.

  • Age of the client upon application
  • Current health status
  • Present and future financial needs of the beneficiaries
  • Death and funeral plans
  • Age of beneficiaries
  • Present debts and mortgages
  • Health expenses in case of a critical illness
  • Health plans
  • Retirement plans
  • Estate plans
  • Donation of the policy to a charity institution

According to a report from LIMRA, more than 54% of adults already have whole life insurance. In comparison, 29% want to purchase life insurance, and 40% of people who are already insured said that they should have purchased insurance sooner. 

Benefits of whole life insurance

Increasing Death Benefits

There is a stated value of the death benefit within the contract. However, if the contract participates, the death benefits increase according to the plan’s amendments. 

Whats that mean exactly

if the policyholder added an extra feature or cash value for loss of limb, accidental death, and other tragic events, its cash value is added to the sum of the original death benefit. 

 Maturity

All whole life insurance policies have a maturity clause. The clause states that the policy’s maturity will take effect after the death of the insured or he/she reaches 100 years, whichever comes first. If the insured reaches 100 years old, then he/she will receive the entire face value of the contract. However, policy issues from 2009 up to now have increased the clause to 120. 

 Income Taxes

 It is good to know that money from the whole life insurance policy is tax-free, including internal cash value. Free of tax is also available for other life insurance types like term life, accidental death, and group life plans. 

 Moreover, if the cash is withdrawn from the policy, then IRS is applied. Therefore, gains from the total amount of the premium paid are taxable as ordinary income. A tax-man will tally the amount of your investment and the amount you will receive over the total profit. 

There is another way to get the cash that you need from the policy with tax. It is to get the money through a loan against the death benefit. The amount is withdrawn from the trust as a loan is not taxable. Insurance companies aware of this track will charge a small percentage that s less than the dividend every year. 

Estate Taxes

The whole life is not taxable, but it is not the same as the estate tax. In the United States, the money you will get from your whole life insurance is considered part of your taxable estate. 

Premiums Paid

Premiums for whole life insurance are a problem for many clients who want to consider it to secure their families. The reason is that it is way more expensive than other types like term life. A 40-year term life with that is $500.000 for a 20-year-old individual will only cost $700. With whole life, the same term coverage will be five times higher of around $4,000.

More great benefits of whole life Insurance 

  • The premium stays the same and will not change during the policy. However, carefully read the fine print as some insurers may increase their quotas once the insured reach a certain mature age.
  • It is possible to access the cash value anytime according to the term and conditions of the policy. The money from the cash value is tax-free and can be used to pay for premiums. The whole life insurance policy may be a better option for individuals who needs coverage that is more than 10 to 15 years.  
  • The best benefit that a policyholder can get from this type of policy is the assured death benefit, growing cash value, and unchanged premiums.

Best uses of whole life insurance

Whole life insurance for personal use

Many individuals are drawn to a whole life insurance plan because it provides a lifetime of coverage. It s the main choice for many, especially once they enter a certain age because of the following reasons:

  • Increasing funeral expenses
  • Surviving spouse income
  • Estate planning
  • Supplemental retirement income

 Whole life insurance for business use

Many companies choose a whole life insurance policy to secure that business against possible tragedies in the future. It can secure them from the death of an important employee and as supplemental for executives’ retirement plan. 

Can whole life insuance be worth it

The answer to this question depends on your personal needs and wants. Coach B explored the major differences between term life and whole life insurance. In case you only need coverage for a definite length of time, like 10 or 20 years, then whole life insurance might not be for you. Therefore, it is good to go for term life insurance for a more affordable policy.

Moreover, if you wish to secure yourself and your family for your entire life to avoid worrying about the end-date, whole life insurance is the best policy for you.

However, health problems might hinder you from getting a term life. One may not qualify for term life if he/she has serious health issues like diabetes, heart illness, or cancer. Therefore, one may consider getting guaranteed issue coverage instead for a higher cost.

Cash value whole life insurance

cash value - whole life insurance - coach b. insuranceThis policy can support your needs while you are still alive. That’s right, a policyholder can ask the insurer to withdraw from the cash value fun, so you can live a peaceful life during your old age.

It is similar to a permanent life policy, which has an investment feature. With this policy, a part of your premium is put into an investment by the insurer and earns interest. By the time it matures, it will gain an ample amount of investment that you can use for whatever purpose you want. 

A cash value may grow using a fixed rate or valuable rate. The increase of rate depends on the insurer, policy, and contract you signed. That is why it is crucial for every policyholder to carefully read and understand the fine print of the contract before signing.

Uses for the cash value in your whole life insurnace policy

Loans
A policyholder can either borrow half or whole value of the investment fund. However, many insured wants to why a loan is better than withdrawal. Another question is why you need to pay the company by borrowing the money from your cash value if it is your money?

It is because the insurer will not take anything in interest from the loan. Interest is paid because a loan is not taxable, according to the American Institute of CPA. Therefore, if you die while still paying for the loan, then the outstanding balance will be deducted from the death benefits’ total net value.

Withdrawals
The most straightforward way to get your money from the cash value is by calling your insurer and asks for it. The company will wire the funds to your bank account. The money will come from the portion of premiums invested. The money is tax-free because you are already taxed along the line, so the government cannot double tax. 

For instance, you will receive $30,000 after some calculations, then that entire amount is all yours. However, money that is above $30,000 is already a profit and interest. Therefore, it is considered as earned income by the government. 

According to the IRS, it is already taxable. Another thing to consider is the amount taken from your policy may decrease your death benefit.

Furthermore, if you cancel the policy, which you can do anytime, the insurer will give you paid premiums. However, the insurer needs to subtract unpaid premiums, loans, and additional charges like surrender fees.

Using cash value to pay up your whole life insurance 
In case you do not have any loan and the policy already matures, you can use the money from the cash value to pay for premiums or the entire policy.
How much cash value can the policy incur?

If you will opt for universal life, which is another type of whole life insurance plan, the insurer sets a minimum interest rate of around 2 to 3 percent. In case the company increases in value, then part of the increase is added to the company’s universal policies’ cash value. There is a maximum percentage of the amount stipulated within the policy contract.

Moreover, if the company’s portfolio does not experience any gain, or if it experiences some losses, the company will still pay for the agreed minimum interest rate stipulated within the contract. That is why policyholders must have thorough knowledge and understanding of the policy contract.

Policy Surrendering
Insured may cancel the policy if they think that it is not beneficial for them anymore. The insurance provider will subtract unpaid premiums, loans, and additional charges like surrender fees. Also, you will pay income tax for the portion of the money given to you.

Cash Value as Payment for Premiums
In case you do not have any loan and the policy already matures, you can use the money from the cash value to pay for premiums.

How much cash value can the policy incur
If you will opt for universal life, which is another type of whole life insurance plan, the insurer sets a minimum interest rate of around 2 to 3 percent. In case the company increases in value, then part of the increase is added to the company’s universal policies’ cash value. There is a maximum percentage of the amount stipulated within the policy contract.

Moreover, if the company’s portfolio does not experience any gain, or if it experiences some losses, the company will still pay for the agreed minimum interest rate stipulated within the contract. That is why policyholders must have thorough knowledge and understanding of the policy contract.

Should you use permanent life insurance as an investment

Without thinking about the fees and commissions, permanent is an excellent investment tool for several reasons. People who are in term life insurance fear that they may not be able to renew their term. It is because of health issues, disorders, and disabilities, but with permanent, it is for a lifetime. It can offer peace of mind and stress-free life, knowing there is coverage in place in case something bad happens to you.

Another huge great advantage is the fact that it comes with helpful care riders. If you want to secure your future and plan for long term care, a permanent policy with long term care riders is advantageous. Also, those who rely on Medicaid subsidy can take advantage of whole life insurance for an irrevocable trust. Assets put in this trust will not disqualify anyone from Medicaid. Instead, it useful to transfer wealth to your heirs, pay for final expenses, and provide steady income.

People in business or those with huge net worth can benefit from the cash value to avoid paying for estate tax. Couples with a total net worth of $10 million at the time of their death will be subjected to federal estate tax. A considerable amount of money from your net worth will be used to pay for estate taxes. It may take 40% per dollar from $10 million.

Some think that estate tax is something that they should not worry about. If you have the same mindset, think again! Each state has its estate tax guidelines, and some may get tax for net worth as low as $1 million, and it may include your house.
Anyone can benefit from getting their whole life insurance to stay away from taxable estate for their assets strategically.

ILITFor example, a woman in Oregon with a net worth of $1.5 million without a whole life insurance policy will surely pay for an estate tax. Therefore, $500,000 from her estate will g into 10% state tax, which will cost her heirs to lose $50,000. In case she has a whole life insurance plan with irrevocable trust and cash value, then her net worth will stay the same. The heirs can get the money from sheltered withdrawals from the policy without worrying about the estate tax.

Whole life insurance is something to consider for those with huge net worth, especially for couples. It is challenging at first, and the fee may vary according to the insurer’s guidelines. What is not hard to understand is that getting away from 40% federal tax and 10% estate tax is a huge saving. A whole life insurance policy will stay with you for a lifetime, and the premium remains the same.

The agreed coverage for the policy will not change or decrease, plus it has a growing cash value. All of these benefits make this coverage more expensive than a term life policy. It is a security blanket for its policyholders and their families for as long as the insured lives. After the passing of the insured, the beneficiaries will get the death benefit and the cash value.

It is an agreement or contract between the policyholder and the insurance provider or the insurer. Within the agreement, the policyholder has to pay for premiums. After the insured’s death, beneficiaries may apply for a claim and get the money from the policy. 

However, the contract may differ according to the insurance provider. Some amendments, like critical or terminal illness, loss of some body parts, and disability of the insured, may trigger payment for the benefits.

Inside the contract, there are some boundaries set by the insurer for the insured. These are omissions that are written within the contract fine print. It limits the insurer’s obligations in case of fraud, riot, war, suicide, and other civil turmoil.

Whole life insurance quotes

Whole life insurance calculator

Life Insurance Need Calculator
This calculator will help you to decide how much life insurance you need if your survivors invest the life insurance benefits they receive.

Funeral cost, estate taxes, etc. ($):
Amount needed to pay off non-mortgage debt ($):
Amount needed in emergency fund ($):
Amount needed in college fund ($):
Expected average annual living expenses ($):
Expected spouse's average annual income after taxes ($):
Annual Social Security Benefits ($):
Spouse's current age (#):
Value of current liquid assets ($ total of savings, investments, etc.):
Expected survivor's investment strategy:
Life insurance needs: