Whole life insurance is a type of permanent life insurance and among the most common, according to the Insurance Information Institute (III). When buying life insurance for the whole family you should be selective. One policy in particular, whole life, offers a savings component called “cash value,” and life-long protection. This remains in effect as long as premiums are paid up-to-date, and naturally, whole life provides a death benefit upon your death.
Included in the benefits of purchasing a whole life policy is the fact that your premiums and death benefit are fixed, so you can withdraw funds or take out a loan, and you also have a guaranteed rate of return.
In contrast, a universal life insurance policy may offer the option to adjust your premiums or death benefit. The good news is that with fixed premiums and a fixed death benefit, you won’t have to worry about cost increases as you get older and loved ones will know the amount of life insurance proceeds to expect upon your passing.
An explanation of the policy’s cash value
A whole life policy can serve as a source of emergency funds for you in the event that you experience a negative event as it will allow you to take out a loan against the policy. That’s due to the fact that a portion of each of your premium payments goes into a savings component of the policy referred to as the cash value of your policy. Since this builds up over time you’re now able to withdraw funds or borrow money against your policy.
The Internal Revenue Service (IRS) will not allow you to deduct premiums you paid for a whole life insurance policy on your tax return, but if your beneficiaries receive the death benefit from your policy they will likely be exempt from paying federal income taxes on their benefit. Keep in mind that any interest earned on top of the death benefit will be considered taxable income.
When you’re ready to get life insurance for the whole family you may want to talk it over with a local agent and review other options before you make any final decisions. It’s always best to be confident you’ve chosen the life insurance policy that’s right for you.