Understanding Whole Life Insurance: What You Need to Know

If you’re thinking about buying life insurance, you’ve probably heard of whole life insurance policies. But what is whole life insurance, and is it right for you? In this blog post, we’ll cover the most important features you need to know about this type of life insurance so you can make an informed decision.

What Is Whole Life Insurance?

Whole life insurance is a form of permanent life insurance. Unlike term life insurance, which is only valid for a predetermined term — for example 20 or 30 years — whole life insurance provides coverage until you pass away, regardless of your age. That means your beneficiaries will always receive the death benefit you’ve specified. The only scenario in which this doesn’t occur is if you haven’t paid your premiums, in which case the policy expires.

How Does Whole Life Insurance Work?

A whole life insurance policy consists of two elements: a death benefit and the cash value. The death benefit is the amount that’s paid out to your beneficiaries in the event of your death. The cash value is the accrued value of the policy and the part that earns interest.

In some cases, you can borrow against the cash value if you need money. However, you’ll likely pay a high interest rate on the loan, and the money has to be paid back into your policy — otherwise, the loan amount will be subtracted from the death benefit when you pass away.

It’s important to understand that as a rule of thumb, your beneficiaries receive only the death benefit. However, some insurance companies offer riders that ensure both the death benefit and the cash value are paid out to your loved ones.

What Are Accelerated Benefits?

According to NerdWallet, accelerated benefits allow you to take some or all of the payout in the event you become terminally ill. Some insurers offer chronic illness riders that allow you to access the money early if you develop a serious chronic condition.

Should I Rely on a Whole Life Insurance Policy to Supplement My Retirement?

In general, financial experts advise against supplementing your retirement savings with a whole life insurance policy. The reason for this is that the premiums are relatively high, and accessing the money before you die comes with significant fees.

Speak to an Independent Life Insurance Broker

Purchasing life insurance can be confusing and even overwhelming. But as the COVID-19 pandemic has shown us, life can be unpredictable, and events can quickly turn tragic. That’s why at Liberty Financial Group, we have a team of expert agents standing by to help you. Because we’re not affiliated with any single insurance company, we can help you determine your needs and select the best policy for your situation. For more information and independent advice, please contact us today.