Common wisdom holds that term life insurance is generally less expensive than whole-life (permanent) insurance. For those who are relatively young and in good health, this is probably true. However, as people grow older, term policies can become exponentially more expensive.
If you think you will need life insurance protection for the rest of your life, and your group or term policy is about to expire – or you want to purchase more life insurance to cover current obligations, pay off debts, or provide a tax advantage for your heirs – now may be a good time to explore whole-life insurance. If so, you’ll be in good company. Whole-life insurance policies accounted for almost 60% of all individual life insurance policies purchased in 2006.
Whole-life insurance traditionally remains in force for the life of the insured, and the policy premiums usually remain constant. In the early years, the premiums are typically higher than the actual cost of protection. Excess premium amounts are invested by the insurance company and have the potential to build cash value.
Policyholders can borrow from the accumulated cash value of a whole-life policy. However, loans accrue interest, and if the money is not paid back during the insured’s lifetime, the outstanding amount will be deducted from the death benefit.
Younger policyholders may want to avoid taking a loan because they typically have the greatest need for protection and they may not have accumulated significant cash value. However, tapping into the policy’s cash value may make more sense as a policyholder ages, when the need for protection may decrease and other needs may emerge. For example, the cash value could be used to supplement retirement income or help pay off a mortgage. It could even help pay for a family member’s college education.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.
As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
Can your risk-protection strategy benefit from a whole-life insurance policy? Call today to learn how permanent life insurance can be a source of protection and a way to help accumulate money to use for future needs during your lifetime.
