Over the last few years, term life insurance seemed to be best way to provide for your family if you were to die. It is affordable and paid out well, but after years of renewing policies that did not guarantee any benefits, people have started to turn back to whole life insurance coverage.
There are many differences between whole and term life insurance plans, a major difference being the cost of the two options. Whole life coverage has received a reputation for being expensive when compared to term life plans, and to be fair, it is. However, it is unfair to judge the two products on price alone.
For many people whole life insurance is the better investment. These people are looking beyond just the death benefit, and are looking for cash accumulation with guaranteed rates of return that come with whole life insurance. Although the rates of return are smaller than what some stocks and mutual funds pay, they offer no guarantee and can decrease in value. Whole life policies pay out guaranteed rates that are higher than what you will find with any other guaranteed investment product. Also keep in mind that the cash accumulation you obtain with a whole life policy is not subject to the same tax rates that stocks and mutual funds are.
Taxes are another reason people are choosing to invest in whole life insurance. Proceeds from whole life policies are generally not taxed, even when the benefactor dies and the funds are passed on to the beneficiary. Although taxes on capital gains and dividends have been recently reduced, they are still subject to taxation, which can eat into the amount of money passed on to the heirs.
Whole life policies can accomplish things that term life coverage cant. For instance, once the policy has accumulated enough cash value, the owner of the policy may opt to use the cash value to pay for the monthly premiums, so they no longer have any payments to make. They still have the protection of the death benefit, without any further monthly payments for as long as the cash value of the policy exceeds the amount of the monthly payment.
Another benefit is that the policyholder can borrow money from their whole life policy’s cash value. As banks become less and less inclined to offer loans, obtaining cash will become more difficult. With a whole life policy, the policyholders can borrower cash against their death benefit without a lengthy approval process. And, since it’s actually the policyholder’s money, there’s no rush to pay it back.
There are benefits to both whole life and term life insurance products. But for someone who is looking for cash accumulation with a guaranteed rate of return, whole life insurance is an investment option that should strongly be considered.
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