Whole life insurance remains in force as long as you remain current with premiums. Here’s how it works.
Let’s look at whole life insurance. In exchange for fixed premiums, an insurance company promises to pay a set benefit when the policyholder dies, but also offers additional benefits as well. Whole life insurance policies can build up cash value – effectively a cash reserve that pays a modest rate of return, and the growth is tax-deferred. The insurance plan guarantees are based on the claims-paying ability of the issuing company.
Most whole or permanent life insurance policies allow policyholders to borrow a portion of their policy’s cash value. Access to the cash value can allow you to pay for things like college expenses, a down payment on a home, or any other needs. Interest payments on policy loans go directly back into the policy’s cash value.
When the policyholder dies, his or her beneficiaries receive the benefit from the policy. Depending on how the policy is structure, benefits may or may not be taxable.
Whether whole life insurance is the best choice for you may depend on a variety of factors, including your goals or circumstances.
Accessing the cash value of your Whole Life Insurance Policy
When you borrow against this cash value of your policy, there are some important points to consider. If you access the cash value of the insurance policy through borrowing, or parial surrenders has the potential to reduce the policy’s cash value and benefits. Withdrawing the cash value may also increase the chance of a potential lapse and may result in a tax liability if the policy terminates before your death.
However, as with all types of life insurance, several factors will affect the cost and availability of whole life insurance, including; age, health, and the type and amount of insurance purchased.
Life insurance policies have expenses, including mortality and other charges. If your life insurance policy is surrendered prematurely, the policyholder may also pay surrender charges and have income tax implications. You may download a copy of the National Association of Insurance Commissioners “Life Insurance Buyers Guide“
Things to Consider
You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Life insurance is not insured by the FDIC (Federal Deposit Insurance Corporation). It is not insured by any federal government agency or bank or savings association.