Is Whole Life Insurance Considered a Good Financial Investment

When people talk about assets, there is one asset often times left off of the list. Life insurance is an oft forgotten asset class. Assets are anything you pay for today and hedge to be worth cash flow at some point in the future. Life Insurance, specifically Whole Life works exactly like that. Many of you will not even know what whole life insurance is, as after the 1981 Tax Equity and Fiscal Responsibility Act (TEFRA), many insurers began to push Term life insurance. People at the time began to question the need to pay a little bit more for whole life insurance. Term life is cheaper when you are younger and have little need for life insurance, but whole life policies bought when you are younger become cheaper as you get older. When it comes to insurance, most people do not understand fully the polices they buy, this is especially true today with life insurance, more so in the difference between whole life and term life policies.

Term life insurance has a temporary lifespan. for a time the premium is level, but after a period of time, the premiums increase yearly, until such a time as the premiums become so expensive that continuing to hold the policy becomes cost prohibitive, and the need to terminate the policy occurs, often when it is needed most, when the would be policy holder is near their time of death. The only benefit to term life insurance is the death benefit.

Whole life insurance the premium is set, the premium will never increase. If you can afford the premium today, chances are you can keep the policy for life. The big difference with whole life insurance is it is also an asset. Whole life insurance policies are a tax-sheltered cash account. The money you put into a whole life insurance stays with you for life. Whole life insurance accounts also gain interest, and you do not pay taxes on these gains. Much like stocks, whole life insurance has dividends. The dividends can be used in one of two ways, to reduce the cost of the premium, or added to the cash inside the policy and the face amount. Term life insurance has little to no dividends, and no way to reduce the premium, the premium only increases with term life insurance. With whole life insurance policies, you pay no current federal income tax on potential cash value growth. As the cash value of your whole life insurance policy rises, it is not subject to current taxation. You can also borrow against your whole life insurance policy, and you will not pay federal income tax when you borrow from the cash value of the policy through loans. Loans you see are treated as debts, not taxable income. Carrying a whole life policy for 5, 10 or 20 years can help you build up a sizable non taxed nest egg you can tap into for loans, and borrow against in retirement, if the loans are structured properly. The only thing one needs to keep in mind about whole life insurance when it comes to borrowing against it, is that there is interest being charged, and can reduce the death benefit and overall cash value of the policy. Yet with whole life insurance you only get a death benefit, nothing that you can use when alive, and the premium increases at a steady rate as you age. You can also be dropped from term life insurance, but whole life you cannot be dropped due to age or health conditions, and your premium cannot be jacked up due to any health conditions you might develop as you age.

To sum things up with whole life insurance:

* Policy builds up cash value that can be borrowed against

* Policies cash gains are tax exempt

* Premiums never increase, hence the name “whole life insurance”

* Considered an asset class due to the fact these polices gain value and can be used to borrow against in times of need.

* Principal protection guarantees of your money. Not subject to lose like mutual funds and stocks.

* Dividends paid to policy owners are not taxable.

* Properly structured whole life insurance policies carry high cash value even in the early years of the policy.

* Unlike some assets like a retirement IRA or 401(k)s, you have access to your cash value at any age, at any time, for any reason, without taxes and penalty’s.

* A whole life insurance policy is like your own personal bank that you can loan from to pay debts or to create more wealth.

* Unique tax benefits. Any funds inside the policy are tax-free for life. When you do finally pass on, the death benefit is also tax free for your beneficiaries.

* No other investment carries the sheer amount of benefits that whole life insurance carries, not stocks, bonds, term life, 401(k)s or IRAs or real estate.

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