How Whole Life Insurance Works and Why You Might Need It

One of the most important things you can do to ensure your family is financially protected after you’re gone is to purchase a life insurance policy.

Although you may already know that your life insurance policy will pay your beneficiaries a lump sum after you pass away, you may not know that there are two different life insurance options available to you – they are term life insurance and whole life insurance.

What Is Whole Life Insurance?

While term insurance (also referred to as “pure” life insurance) is designed to provide coverage for a limited amount of time and has no additional benefits, whole life insurance is designed to provide permanent coverage. It also accumulates cash value

 Term life insurance policies will only typically provide coverage for 10 to 30 years, while whole life insurance policies will provide coverage for the duration of the insured’s life as long as the monthly premiums are paid. Whole life insurance also comes with other benefits that the insured can benefit from while they are still alive.

The amount you’ll pay for monthly premiums will depend on the amount you’d like to leave your beneficiaries – you can use this whole life insurance calculator to get a quote.

Whole Life Insurance Benefits

A whole life insurance policy is one type of permanent life insurance. The cash value component ensures that a portion of your premium is invested, which means that your money will grow over time. Because the sum is accumulated on a tax-deferred basis, you won’t have to pay tax on your gains.

Although the cash value takes a while to grow into a useful amount, you can withdraw or borrow against your whole life insurance policy’s cash value, use it to supplement your retirement, surrender the policy for cash, or even use it to pay your policy’s premiums.

Whole life insurance is the simplest form of permanent life insurance because the amount you pay on your premiums never changes, the cash value is guaranteed to grow at a certain rate, and the death benefit is guaranteed.

The Premium Remains the Same

The monthly premium you pay on your whole life insurance policy will remain the same throughout the policy’s lifetime.

This may be more affordable in the long run because term life insurance premiums can increase significantly over the years. If you are considering whole life insurance for retirement planning purposes, you will benefit from the fixed cost it offers during your senior years.

The Death Benefit is Guaranteed

The death benefit amount you leave to your beneficiaries is guaranteed when you pass away. Because whole life insurance is permanent, it will remain in place as long as the monthly premiums are paid.

It’s Tax-Free

Not only is the death benefit for your beneficiaries guaranteed, but you’ll also have the option of accessing the cash value that accumulates overtime on a tax-deferred basis. You can withdraw or borrow against the amount – just be sure to pay it back so that the death benefit is not reduced.

Your beneficiaries will also benefit from a whole life insurance policy because they can get access to the death benefit faster when it’s not tied up by taxation processes. Please note that tax rules are subject to change, and you should always obtain advice or perform relevant research (directly on the HMRC website for the latest guidance) before you take out a policy.

Final Words 

Although a whole life insurance policy’s monthly premiums will cost more than a pure life insurance policy in the beginning, the additional cash value it accumulates means that it is better value for money than a term insurance policy.