Whole Life Insurance (WL)
Whole life insurance is a permanent insurance contract, which provides lifetime coverage that will not lapse as long as a premium is paid each year. Whole life policies also build what is called cash value that can be accessed by the policy owner through out the life of the policy.
Polices Can Earn Dividends
Participating whole life policies earn dividends, which the policy owner can choose to receive or reinvest back into the policy. Policy dividends are not guaranteed and are tied to the overall financial returns of the insurance company.
These dividends if put back into the policy can enhance the cash value growth and increase the death benefit, by purchasing additional amounts coverage called paid up insurance. Dividends can also be used to help pay or reduce the premium. However, this option may have a negative effect on the life insurance policy’s cash value and death benefit.
Whole life insurance is designed to provide life insurance protection for the life of the insured. Coverage is guaranteed not to expire or lapse as long as premiums are paid (whether out or pocket or by policy dividends). For this reason, premiums are much higher than that of a term or universal life contracts. A portion of the cash value is also guaranteed. This is a valuable feature since it enables the policy owner to recuperate at minimum the total premiums paid, with the potential for substantial growth over time.
Tax Advantages of Whole Life Insurance
Policy cash value growth is tax deferred and can be accessed tax free at any time via policy loans. Typically these loans do not have to be paid back and will be deducted from the death benefit if there is a claim. The tax deferred accumulation is an invaluable tool for the policyowner, since the policy can serve as a tax favorable savings account. Policyowners can also withdraw policy cash value or dividends up to total premiums paid without incurring any tax liability. Another tax advantage is the fact that generally beneficiaries receive the death benefit income tax free.
The death benefit paid to beneficiaries is received tax free since it is not considered income by the IRS. Policy dividends are not taxable to the policy owner since they are considered to be a return of premium.
Whole Life Policy Features:
- Guaranteed Lifetime Death Benefit
- High Guaranteed Cash Value Accumulation
- Tax Deferred Cash Value Growth
- Policy Dividends Not Taxable to Policy Owner
- Policy Dividends Can Purchase Additional Insurance
Whole life insurance is an excellent funding tool to be used for retirement, children’s college education, or provide a sizeable nest egg that can be accessed by the policy owner at any time during life. To get more information on available life insurance options, please contact us.