Whole Life Insurance
Whole life insurance is permanent life insurance policy that pays the beneficiaries a specific amount upon the death of the insured. Because the insurance policy also builds up a tax-deferred cash value over the life of the policy, the policyholder can borrow against the cash value of the policy. The cash value depends on the amount of your premiums minus expenses and other charges implemented by your life insurance company.
Because whole life insurance policies generate tax-deferred cash value over the life of the policy, your policy can be considered as an investment. Depending on the terms, you could withdraw money to use for certain expenses as purchasing a vehicle, purchasing a home, or paying for home improvements. The amount of cash value withdrawn depends on the amount of premiums you’ve paid. If you are able to withdraw more than your accrued cash value, you will need to pay income taxes on the amount that exceeds the cash value.
Should you collect cash value in your whole life policy, it would reduce the death benefit paid to the beneficiaries. If you withdraw the entire cash value, your policy will be canceled. Depending on the whole life policy, you may have the option of taking out a loan against the cash value. The loan will gain interest until it’s paid off. You can choose to pay off the loan yourself, or wait and have the loan paid off with funds from your death benefit.
Reasons to Consider Whole Life Insurance
Premiums are guaranteed
Builds cash value
Flexibility in borrowing from the policy
Coverage until insured has deceased