Whole Of Life Insurance
Whole of Life Insurance is considered permanent life insurance since it stays in force for the life of the insured as long as the periodic premiums are paid. Although there are many variations of the Whole of Life product, the oldest and most common type issued is the ordinary level premium Whole of Life insurance policy.
With Whole of Life insurance, the premiums paid in the early years are significantly more than the cost of the insurance, and the additional premium is placed in a “cash value” account. The cash value account is guaranteed to earn interest over the life of the policy so that the cash account will support premiums paid in the latter years of the policy when the periodic premium falls short of the actual cost of the life insurance.
The Advantages of Whole of Life Insurance
There are many advantages to having a permanent life insurance policy that builds cash value over time:
- The whole of life policy has a fixed premium for the life of the policy.
- The whole of life policy will remain in force as long as the periodic payments are made.
- The interest paid on the cash value is considered tax-free or tax-deferred, depending on when the gains are surrendered.
The Benefit of Cash Value
Although the cash value in a Whole of Life policy is built to help pay the cost of insurance in the policy’s latter years, the policyholder retains access to the account and can access the money through policy loans or partial surrender. If a loan is taken from the cash value account, the policyholder can elect to repay the loan in any fashion they choose. They can also pay the interest charged on the loan during the year or can elect to have it automatically deducted from the remaining funds in the cash account.
Who Might Purchase Whole of Life Insurance
Although there are many competing types of life insurance available, Whole of Life is still considered by consumers to be a “port in the storm” when the worst thing happens.
- The life insurance proceeds are never part of the insured’s estate unless specifically directed by the insured. This means that a beneficiary will generally receive the death benefit without the expense and delay that results from the administration of the estate.
- In most cases, the death benefit is not subject to taxes, and in most cases, are not subject to state inheritance taxes.
- Policy owners are free to use the cash value in their policy as collateral for personal loans.
One of the most popular uses for whole of life insurance is for final expenses such as funerals, nursing home balances, debt, and taxes. Many people who are uninsured or have let policies lapse, can purchase whole life insurance up to age 80 or higher depending on the company.
Contact your Trusted Union Insurance advisor to find out how Whole of Life insurance can be used as an investment vehicle during your life and a gift to surviving loved ones after your death.
whole Life Insurance Faq
How does a whole of life policy work?
The primary function of a life insurance policy is to pay your dependants a lump sum of money when the insured passes away. There are 2 types of life insurance policy: term life insurance and whole of life insurance (sometimes called whole life insurance or permanent life insurance).
A term life insurance policy works the same way you would expect but the policy is only valid for a fixed number of years (i.e. 10, 15, 25, or even 30 years).
A whole of life insurance policy does the same thing but it lasts for your whole life as long as you’re paying the premiums.
Another interesting feature of the whole of life insurance policy is the “cash value” account. With this feature, a portion of the premiums you pay in the early years are placed into a cash value account which earns interest over time on a tax-free or tax-deferred basis. The funds in this account can be pulled out, borrowed from, or otherwise used – most commonly – it’s used to pay premiums in the later years of the policy.
How long do you pay on whole life insurance?
Like the name would imply, the insurance policy lasts your whole life which means you’ll be paying your whole life.
That said, it’s not as intimidating as you might think. The cash value you’ve saved up in your policy during the early years can be used to pay policy premiums in your later years. This feature is especially useful if you’re having trouble making life insurance payments while retired.
What happens to cash value in whole life policy at death?
Upon death, the cash value that you’ve saved up in the policy is simply added to the lump sum death benefit to the paid to your dependants. Holding your cash value until the policy pays out is a great way of accumulating tax-free gains and pass wealth to the next generation in a very tax efficient way.
What happens when a whole life insurance policy matures?
Many whole life insurance policies have a maturity date set at age 100 or even 121. These are ages that most people will never achieve but if you do happen to make it there, your policy has “matured” and the cash value you’ve accumulated is adjusted to equal the death benefit and paid to you as a lump sum.
Does whole life insurance have cash value?
Yes it does. Most whole life insurance policies in Hong Kong will come with a cash value account. A portion of premiums paid in the early years of the policy will go into this cash value account and accumulate interest.
This cash value can be drawn upon later on to pay for policy premiums or for other uses. One great advantage of the cash value account is that it allows money to accumulate on a tax-deferred basis (if you’re borrowing from it or withdrawing it at a later date) or even a tax-free basis (if you don’t extract from it and it becomes part of the lump sum death benefit).
For this reason, the cash value can be a great wealth transfer tool.
Is Whole Life Insurance A Good Investment?
As with most things in finance and insurance, the answer is: it depends. Whole life insurance has many advantages over term life insurance policy – many of which centre around its investment characteristics.
While a whole life insurance policy shouldn’t be your only financial product, it’s great for 2 things:
1. To pass wealth down to the next generation(s) on a tax-free basis. In many jurisdictions, children who inherit their parents’ wealth will need to pay estate taxes. But life insurance death benefits are generally tax free. Used this way, whole life insurance is a great way to transfer wealth while saving on taxes. Many clients also purchase just enough life insurance to cover the estate tax to equalize things for their children.
2.To accumulate wealth on a tax-deferred basis. The cash value account built into your whole life insurance policy earns interest that is not taxed until you withdraw from it. Savvy clients will use their cash value to accumulate wealth and only draw from it when their income is lower to reduce their income tax liabilities.
To learn more ways whole life insurance can be used as an investment product, get in touch with a Trusted Union insurance advisor.
Can you pay off a whole life insurance policy?
Yes you can. It’s not possible with all life insurance policies but some will come with a “paid-up” option. This allows you to pay up your life insurance premiums and enjoy the death benefit without having to pay further premiums.
If you want to know whether you’re able to pay up your whole life insurance policy, get in touch with a Trusted Union insurance advisor to have your policy reviewed.
How much does whole life insurance cost for a 30 year old?
It’s hard to say as everyone’s situation is different. But generally speaking, there are a few factors we know will affect your premiums:
Age: the older you are, sooner you’re likely to pass away and claim the death benefit. This means the insurer has to charge you more in monthly premiums to make up the difference.
Amount of Death Benefit:the larger the death benefit you require, the more you should expect to pay in premiums.
Health: one of the first things the insurance company will want to look at is your medical history. Medical testing may be required for your application and the results can impact your eligibility and pricing.
Does whole life insurance expire?
No, a whole life insurance policy does not expire as long as you continue to pay premiums. It’s a form of life insurance policy that very literally lasts your whole life.
That said, many policies will have a “maturity date” set to whenever you turn 100 or 121 years old. At that point, the policy “matures” and you’re paid a lump sum of money equal to the death benefit.
Do you get money back if you cancel whole life insurance?
Generally speaking, when you cancel or surrender your whole life insurance policy, you will not get any of the premiums you’ve paid back.
But, you will get back your accumulated cash value (if any) minus some sort of surrender charge which is taken out from your cash value account automatically.
We generally advise against cancelling your whole life insurance policy if you can avoid it – especially if you’re already late into your policy and don’t have protection elsewhere. If you think there might be a possibility that you might need to cancel your policy in future, speak with a Trusted Union life insurance advisor.
There are different options that might be a better fit for you such as a term life insurance policy, an adjustable policy, or reducing the coverage on your whole life insurance instead of completely cancelling it.
Is whole life insurance better than term life?
As with most things in finance and insurance, the answer is: it depends. It all depends on your goals, financial circumstances, and reason for purchasing insurance in the first place.
If you’re purchasing insurance solely as a way to provide security to your dependants or to make sure you have protection for a limited time (i.e. during a 30 year mortgage), term life insurance might be a great fit for you.
If you’re considering using whole life insurance as part of an overarching financial plan, to pass wealth down to the next generation, or provide long-lasting protection to your dependants, whole life insurance is a good idea.
Term life insurance is more flexible but whole life insurance is a lot more “powerful” as a wealth transfer tool and has numerous options and add-ons to help you “customize” your policy.
Can I reduce my whole life insurance policy?
In most cases, the answer is yes. Most term life insurance or whole life insurance policies will allow you to reduce your coverage at least once after at least 1-3 years has elapsed from the effective date (policy/procedures vary from insurer to insurer).
If you’re worried about purchasing too much life insurance and may need to reduce it in the future, there are several steps you can take:
1.Work with a trusted insurance advisor to evaluate your needs.
2.Ask your broker about which insurance companies will be the most flexible with policy reductions.
3.Look into “adjustable” life insurance which is generally more flexible and will allow you to change things like coverage period, premiums, and the amount of death benefit.
To get help with any of these 3 steps, contact a Trusted Union life insurance advisor in Hong Kong.
What happens when you surrender a whole life policy?
To surrender a life insurance policy means to cancel it in full. While not always advisable, insureds are allowed to surrender their life insurance policy at any time. You can do this by contacting your insurance broker or the insurance company directly. There will be some paperwork involved but the process is relatively straight forward.
When you surrender a whole life insurance policy, you will be able to get back the cash value that has been accumulating but you will no longer have a death benefit. You may also need to pay surrender charges when surrendering a whole life policy.
Someone may choose to surrender their life insurance policy because they have cheaper insurance from elsewhere, their dependants no longer need protection, or they want access to the cash value of the policy.
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