Why Should You Go For Whole Life Insurance Schemes?

The cost of whole life insurance is more than term life insurance. It makes many people wonder if they should get it or not. Whole life insurance lasts your entire life and is permanent coverage. If you want to invest your solid disposable income, it is a good way, as it will double your family’s financial protection. Let us discuss more on this and help you know why you must opt for whole life insurance schemes.

Quick facts about whole life insurance

Let us begin by understanding how whole life insurance works. Your insurance company will pay a tax-free death benefit to your family members in exchange for premiums after you die. Most of the time, a cash value savings component is also present in a whole life insurance scheme. You can use the added financial benefits throughout your life. Whole life insurance is not the first choice of people. They usually go for term life insurance because it is simple and affordable. But learning facts about the whole life insurance scheme will help you make a better choice.

It is life insurance for your whole life you can purchase at an average cost of $55 to $136 per month. You get guaranteed death benefits as well as cash value. The cash value grows at a rate set by the insurer. Compared to other investments like guaranteed issue and final expense, it is a low-risk investment. 

When should you get whole life insurance?

Below are some of the situations when you should opt for whole life insurance instead of term life insurance:

When you are saving for retirement and maxed out other accounts

Individuals who have maxed out retirement savings because of 401(k) and IRA income caps can take advantage of a whole life insurance policy. But whole life insurance should never be your primary source of retirement savings. However, it can be a supplement to your retirement plan if you have maxed out other options. It is a low-risk alternative to add more to your savings and accumulates tax-deferred growth. 

The cash value growth of a whole life insurance policy increases steadily over time at a lower rate of interest than various other investments in mutual funds or the stock market. The lower returns in the interest rate might appear like a negative thing. But, these returns are less volatile and more stable compared to other retirement accounts. If the market is down when you retire, you can pull cash from your whole life insurance. 

You have a large estate and a high net-worth

You should pay the federal estate tax after you die, if your estate exceeds $12.6 million per person or $24.12 million for a married couple. The rate of tax is 40%. Some states offer a low exemption amount. Do you want your heirs to pay the taxes from their pocket? No right. So you can instead set up a whole life insurance scheme. You can use it to settle the estate taxes after you die.

Apart from funding the estate taxes, people with high net worth can use a whole life insurance policy to transfer wealth without enhancing their taxable estates. In simple terms, your beneficiaries can reap advantages from your whole life insurance policy tax-free. It will also not add any stress or complications of probate or other legalities. 

You are taking care of a lifelong dependent.

An aging parent, adult, and child with a disability require lifelong financial support. In this case, whole life insurance is the best option as it will never expire. Out of the entire population, 15% have some disability.

You can ensure your loved one is lifelong support by naming your dependent a trust or as the beneficiary. If the dependent cannot fund the expenses, you can name them as your beneficiary in the whole life insurance. The payout process gets a little complicated if your child is under the age of majority in your state. 

When you are buying life insurance for your children as parents

Parents with tremendous disposable income can buy whole life insurance for their children. It is just like investing in your kids when they are young. A whole life insurance policy that gives a cash value component will have more duration of time to compound. You can transfer the policy ownership to the child when they become financially independent. 

Time and money are the two primary advantages of investing in whole life insurance for your kids. Although it takes around ten years or more for the policy cash value to accumulate, time is still on your side when you purchase a policy for your child early. 

They will get a compound interest from the policy till they finish school. Your child can take a loan against the policy’s accumulated cash value. They can also use it to pay premiums. 

Final Thoughts

A whole life insurance policy is a scheme that never expires. If you are one of those who prefer the set it and forget approach, then this is for you. No stress to going through medical exams and underwriting at an older age. Set up convenient premiums to never miss a payment.