Whole Life Myths Debunked

Many people incorrectly assume that you only benefit from whole life insurance when you die. However, whole life insurance can provide an excellent source of tax free funds to assist with a tight retirement budget while you are still living later in life! 

Below are some incorrect myths about whole life insurance and reasons why they are not true:

  1. Myth: You (or your beneficiaries) can only benefit from your whole life insurance policy when you die.
  • “Participating” (or “par”) insurance company policy owners generally receive annual dividends after the first policy year. Then dividends can be used to fund policy premiums or to buy more permanent increments of death benefit and cash value.
  • Policy owners can generally access the cash value in their policies through withdrawals and tax-free loans. 

  1. Myth: Whole life insurance is not a good place to accumulate your money.
  • The value of a whole life insurance policy is uncorrelated to the stock market and is largely guaranteed by the insurer. Therefore neither death benefits nor cash values are affected by declining markets and a whole life policy can serve as the stable component of your financial strategy.
  • People purchase whole life insurance to protect their families in the event of the insured's death. Although whole life insurance is much more than just a death benefit. It actually can be one of the most valuable assets in your financial portfolio. A whole life insurance policy has a real return that performs competitively within other high-quality, fixed return assets. Depending on how you use your whole life insurance policy, it can end up being two assets and two returns: 1) a living asset with tax-advantaged distributions and 2) an income-tax-free and potentially estate-tax-free death benefit.

  1. Myth: Whole Life Insurance is just too expensive!
  • When considering whether to purchase whole life or to buy term life insurance and then invest the difference, you need to take into account not just the premium costs, but also the length of time you want coverage and your ability to invest the rest efficiently.
  • Term life insurance isn’t designed for lifetime coverage. In fact, term life insurance is prohibitively expensive to maintain for the average U.S. life expectancy.
  • For longer periods such as an entire lifetime, whole life insurance is substantially less costly than a lifetime of premiums paid for term life insurance. If the well defined needs for life insurance will not exceed 30 years, a term life insurance policy will often be less expensive.
  • While term life insurance is typically affordable during the primary premium guarantee period of 5 to 30 years, annual premiums can quickly escalate to an unaffordable level once the guarantee period ends.
  • With term life insurance, the policyholder does not accumulate any lasting cash value. At the expiration of the term of the insurance, the policyholder doesn’t own anything, in contrast to whole life insurance, where premiums build cash value that belongs to the policy owner.

Click on this web link below to read related blog posts on permanent life insurance.

Permanent Life Insurance - Related Blog Posts

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