Alternatives To The Best Whole Life Insurance
Traditional term life insurance is sufficient for most families. Term life, which doesnt build cash value, is much less expensive than whole life insurance. A term life policy lasts a set number of years, and by the time it expires, you may no longer need life insurance.
If youre certain you want lifelong coverage, you can also consider other types of permanent life insurance. Some of the options are:
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Universal life insurance, which gives you flexibility to adjust your premiums and death benefit.
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Indexed universal life insurance, a type of universal life thats tied to a stock index such as the S& P 500.
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Variable life insurance, which lets you choose how to invest your policys cash value.
Live Your Life With Whole Life Insurance
Having a whole life insurance policy from Northwestern Mutual is much more than a safety net. It has benefits you can use while you’re living that will give your financial plan even more flexibility. Whole life insurance builds cash value over time that you can use for anything. It can come in handy for unexpected expenses, putting your kids through college, expanding your business, upgrading your home, or as additional income in retirement.
Your Cash Value Grows Over Time
Your insurance company will give you an interest rate on your cash value account. If these rates were slices of cake, theyd be the almost-stale ones you see in the get-it-before-it-expires stand. So, just like in a savings account, your cash value is supposed to grow. And after youve built some savings, you can choose to borrow against it or leave it as it is .
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How Do I Access The Cash In Cash Value Life Insurance
Jack didnt have to wait long for those magic beans to turn into a huge beanstalk. But what is the cash value of a life insurance policyand are you willing to wait 1015 years for some decent cash value? Because thats how long itll take.
Lets say you can wait 1015 years to build up your cash value. How can you take it out? Well, here are your choices, depending on whether youve got whole life or universal/variable life insurance . . .
Always Chose A Mutual
In reality, the most valuable whole life insurance is sold by Mutual companies. Mutual companies will outperform the competition because the policyholders are part owners of the company.
Stock companies pay dividends to stockholders, and then the rest will go into the policies.
But mutual companies pay dividends directly to policyholders. These policies that get dividends are called participating policies.
So we always advise to chose mutual companies vs. stock companies.
From our top 7 list, all companies are mutual companies.
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You Pay Your Premiums
Every month, the insurance company uses part of your premium to cover your life insurance costs and puts the rest into a cash value account. The breakdown of how much is invested versus how much goes toward your policy changes over time. In the earlier years, a larger percentage of your premiums pays into the cash value, while in the later years, more goes toward your life insurance coverage since the cost of life insurance increases as you age.
Best Whole Life Insurance Companies Of October 2022
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If youre looking to treat your life insurance policy as a cash asset, you might be in the market for a whole life insurance policy. Along with providing a guaranteed payout to your loved ones when you die, these policies build cash value over time at a set interest rate.
To create this list of the best whole life insurance companies, our experts focused on financially strong insurers with low levels of customer complaints. We then honed in on important features of whole life insurance policies, such as riders, the potential to earn dividends and the amount of coverage you can buy.
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Why you can trust NerdWallet: Our writers and editors follow strict editorial guidelines to ensure the content on our site is accurate and fair, so you can make financial decisions with confidence and choose the products that work best for you. Here is a list of our partners and heres how we make money.
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Aflac Whole Life Insurance Can Help You Protect Your Loved Ones
Having a life insurance plan can help protect your loved ones if your main source of income is lost. Aflacs whole life insurance plans can help provide for your family long-term and help you in an emergency.
Try our life insurance calculator to see how much life insurance you may need.
Chat with an Aflac agent about your options if you need additional support.
Still have questions?
Whole Life Cash Value Loans And Withdrawals
The cash taken from your policy can be used for any variety of purposes, including:
- Fund an investment portfolio
- Meet retirement expenses
- Other discretionary funding purposes
The bottom line is that cash value life insurance can be an effective method for building up savings in a structured fashion.
Life insurance is a good investment. And while perhaps not as exciting an investment as individual stocks or mutual funds, the flexibility of these policies in regard to withdrawing funds, along with their tax-favored nature, makes them worthy of consideration by investors who are looking for a means of building up additional savings, especially if they are also looking for life insurance coverage.
And with a properly designed policy, you can use the cash value life insurance as a safe bucket, conducting much of your financing in and through the policy. For more on this, please see our article covering infinite banking.
Cash value is an important part of life insurance. As a society, we have moved away from this fantastic tool, choosing to follow guides who may not have our best interests in mind, or who lack the understanding of how powerful a properly designed cash value policy can be.
For more on permanent cash value policies, please have a look around our site or give us a call today to speak to our team of advanced planning professionals.
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Withdrawing Or Borrowing Against Your Whole Life Insurance Cash Value
There are several approaches when deciding on withdrawing versus borrowing.4 You may be able to get a bank loan or a mortgage by borrowing against the cash value account as guaranteed collateral. Or you may borrow or withdraw the money from your own policy, depending on whether or not you wish to pay the money back. This would ultimately affect the amount of money you leave to your heirs or beneficiaries . Talk to your financial professional, as well as a tax advisor, to determine which choice would be best for you.
Cash Value: A Benefit Of Whole Life Insurance
Life insurance is an indispensable way to give your family greater financial protection. Should something happen to you, the insurance policys payout could be used to help pay the mortgage or rent, monthly bills and other living expenses.
One of the benefits of whole life insurance policies unlike term life policies is that they have a cash value component, an amount that increases over time.
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Tax Treatment Of Cash Value Life Insurance
Cash value life insurance, whether whole life, IUL, or VUL, allows for the tax-free growth of funds in a policys cash account unless the policy is canceled or surrendered, transferred or assigned to another owner, or the IRS no longer designates the policy a life insurance contract.
In participating whole life insurance policies, which pay out dividends, the dividends are considered to be a return of premium as long as they dont exceed, in total, the full amount of the premiums paid on the policy.
This ability to build tax-favored savings over time is a powerful benefit of permanent life insurance policies. These funds can be put to use in a variety of ways, allowing them to function as living benefits.
What Is Whole Life Insurance For Seniors
While seniors may qualify for a variety of policy types depending on their age and health, final expense policies are often referred to as senior policies. Thats because theyre available to those who are too old or in too poor health to buy other insurance. Even those in their 70s can find coverage, with many policies only requiring a brief health questionnaire rather than a physical exam.
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Cash Value Accumulation In Whole Life Insurance
Part of the premium payments for whole life insurance will accumulate in a cash value account, which grows over time and can be accessed with a policy loan, withdrawal or surrender of the policy.
Similar to a 401 or IRA, the money in the cash value account grows tax-free. However, if you take out cash value that includes investment gains, that portion will be taxable.
The accumulation of cash value is the major differentiator between whole life and term life insurance. While actual growth varies by policy, some take decades before the accumulated cash value exceeds the amount of premiums paid. This is because the entire premium does not go to the cash valueonly a small portion. The rest goes to paying for the insurance itself and expense charges.
Most whole life policies have a guaranteed return rate at a low percentage, but its impossible to know how much your cash value will actually grow. Thats because most insurance companies that sell whole life also offer a non-guaranteed return rate of return based on dividends. You can choose to apply your dividends to cash value every year, but you cant know how much that will amount to over time.
It may take decades for a policyholders cash value to exceed whats paid in premiums.
What Happens To Cash Value In A Life Insurance Policy At Death
With whole life insurance, your beneficiary typically receives only the death benefit thats stated in the policy. Consult your plan to know what your terms and options are, especially if youve built up a large cash value.
However, with universal life insurance policies , you can choose between two universal life death benefit options:
- Level death benefit: This is also known as option A or option 1. The death benefit is designed to stay level throughout the life of the policy. With this option, your beneficiary receives the death benefit amount only and not also the cash value.
- Increasing death benefit: This is also known as option B or option 2. In this case, the death benefit increases as the cash value does. This death benefit equals the cash value plus the death benefit your policy was issued with. Your beneficiary does receive the cash value in this case. This type of policy tends to be more expensive since your cash value isnt used to offset insurance costs.
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How Whole Life Insurance Works
Premiums for whole life insurance are the same amount for the life of the policy. As a result, the premiums for whole life insurance are typically higher when you first purchase insurance than they are for a term life insurance policy.
However, if you take out a term policy and renew it several years from now, the premiums for the renewed term life policy would likely be higher than the premiums you might pay on a whole life insurance policy. Many insurance experts recommend purchasing whole life insurance when you are younger to lock in a lower rate.
As mentioned, whole life insurance policies include an investment component that builds cash value over time. Depending on your policy terms about access to your funds, you may be able to make a withdrawal or loan against your cash value.
- Withdrawals: You may use your life insurance to make withdrawals to cover college tuition, home renovation projects or even to donate to your favorite charity. Keep in mind, if your policy allows you to cash out more than your available cash value amount, you’ll incur income taxes on the excess amount. What’s more, any amount you withdraw will reduce the death benefit payout to your beneficiaries.
- Loans: You may also be able to take out a loan from the cash value of your whole life insurance policy without a . You’ll incur interest charges ranging from 5% to 8% until you repay the loan in full. You have the choice to pay back the loan yourself or from death benefit funds after you pass.
Variable Universal Life Insurance
With variable universal life, you will enjoy long-term coverage that protects your familys future and gives you an opportunity to grow tax-advantaged assets. With this product, you can invest your cash value in investment options whose underlying investments are stocks, bonds or other securities, which enables you to capitalize on potential market growth. The cash value will fluctuate according to the market performance of the investment options. Similar to Universal Life policies, premium flexibility is also a feature of VUL.
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Whole Life Insurance Vs Term Life Insurance
Whole life insurance is similar to term life insurance, in both types of policies offer a payout upon the death of the insured. However, there are important differences. While whole life insurance offers a guaranteed death benefit for the entire lifetime of the insured, a term policy only pays out if the insured dies within a certain time frameusually 5, 10, or 20 years.
There are other considerations as well. In order to provide greater benefits, a whole life policy requires significantly higher premiums than a term policy with the same coverage limit.
How Does Whole Life Insurance Work
Whole life insurance policies package life insurance coverage with a savings or investment account thats supposed to build cash value. They often come with a guaranteed return on your cash value, but these profits are pretty low on average. Lower returns are easier to guarantee, right? But thats just the beginning of the bad news about whole life.
Lets dig a little deeper into how this conerr, processworks.
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How Do You Make Money With Whole Life Insurance
Nine Ways to Use Your Whole Life Insurance Policy to Get Cash
How Can I Access Money From The Cash Value Of My Life Insurance Policy
One of the major appeals to a cash value life insurance plan is the ability to access the money while you are living.12 There are a few different ways this can happen, but it depends on your specific plan and the insurance company you choose.
Term life insurance usually does not have a cash value, but if you are interested in one of the permanent types above, you may have more options.
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Your Beneficiaries Receive A Death Benefit
Cash value life insurance is a permanent life insurance policy, which means it can remain in effect until you die as long as you pay your premiums. If you take loans or withdrawals from the policy, you also have to make sure you maintain a minimal cash value level or your policy could lapse.
If you want to make sure your loved ones get something, a cash value policy is likely the better option than term life insurance.
Dividends And Participating Cash Value Life Insurance Policies
Mutual insurance companies dont have shareholders and are, in essence, owned by their policyholders. Therefore, if the insurer makes more money than is needed to run the business, they pay some of it back to policyowners in the form of a dividend. If you have a participating cash value life insurance policy, it means youre eligible to receive a dividend. Dividends are not guaranteed, but most of the top mutual insurance companies have consistently distributed them for decades.
Dividends are distributed according to the size of your cash value. For example, if Jane had $20,000 of cash value and John had $10,000 of cash value, Jane would receive a dividend twice the size of Jons. You can take dividends as cash, use them to pay premiums or use them to buy additional coverage.
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Advantages And Disadvantages Of Whole Life Insurance
The main advantage of whole life insurance is that it provides lifelong coverage that never expires or needs to be renewed. While term insurance does not pay off if the insured does not die within the predetermined time period, a whole life policy offers lifelong protection with a fixed premium. It also accumulates cash value, that can be spent on expenses like medical care or retirement.
As an estate plan, whole life insurance can provide extra benefits above a traditional inheritance. In many states, the death benefit is protected against claims by the decedent’s creditors. Moreover, the cash value of a life insurance policy is tax-deferred, and loans against the policy are also tax advantaged.
The main disadvantage of whole life insurance is that it is expensive. Whole life premiums are significantly higher than those for a term policy, and they have less flexibility than universal life insurance policies. When choosing a life insurance policy, it is important to consider the potential returns from investing the same money in other vehicles.