First, let’s say what whole insurance is not. It is not a
temporary policy.
First, let’s say what whole insurance is not. It is not a temporary policy. Whole life is not for someone who staunchly believes that life insurance is just a stop-gap or commodity put in place for a period (term) while one endeavors to build wealth. It is for someone who believes or comes to believe that it can be a valuable piece of a financial portfolio.
Why can it be valuable ? It has value because it is a permanent policy that can be designed in a multitude of ways to deliver multiple benefits.
For example, your premium will never change, except to go down or cease entirely if so constructed. Conversely, your death benefit and living benefit will increase. Before you ask, your living benefit is your cash value, which grows on both a guaranteed and non guaranteed basis.
The source of the cash growth, in the case of mutual insurers, is dividends earned by the policies themselves.
There is also a provision, available at a modest cost, that allows for payment of your premium, if you were to become disabled due to injury or illness. The premium would be paid, if necessary, at least, through age 60. In all fairness, a disability waiver of premium is offered on some term policies as well. The fact of the matter is that the waiver is noticeably more valuable on a permanent policy that grows cash and death benefit.
A permanent policy is just that – a policy that you own. It has a cash value that grows tax deferred, and once accumulated cannot be lost, providing death benefits for your whole (entire) life time. There are tax efficiencies inherent in permanent whole life policies.
Whole life or term – either or both, depending on your profile and inclinations – can be valuable components in helping to build financial well being. We’ll take a little closer look at that next month.
