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.