Recent market volatility, especially since 2007, has made it more difficult for investors to open their monthly statements. The fear is that the account value is lower than expected. Now might be the time to reassess your risk tolerance and reevaluate your investment plan, and consider other savings and investment options.
Whole life insurance, unique in its own right, is a product that can be a great part of a sound financial plan. It offers benefits and guarantees unlike any other financial product, and with the recent market fluctuations investors are more inclined to consider whole life insurance. To research whole life insurance quotes.
Types of Life Insurance
There are two basic types of life insurance: term life and permanent life. Term life can be thought of as a rented policy for a specific time period, whereas permanent life provides insurance coverage for the entire lifespan. Whole life insurance is a permanent life policy meant to cover the whole life of the policy-holder. Quite often a combination of both term and permanent life insurance makes financial sense; however, only a permanent life policy can offer cash value growth.
Why Insurance Policies are Fairly Safe
When saving through a permanent life insurance policy the cash value is backed by the insurance company’s general account, which means that the cash value is relatively safe. This is because most states have guaranty funds, so that claims are paid should an insurance company become impaired. Additionally, insurance companies are required to maintain specific investment portfolio standards.
Whole life policies also provide guaranteed interest to the cash value of your policy every year. Although additional earnings above the guaranteed interest are not assured, most life companies pay further earnings in the form of dividends.
Whole Life Insurance Tax Benefits
There may be significant tax benefits on the savings and earnings within whole life insurance. The cash value of the whole life insurance policy grows tax-deferred, and loans taken against the policy are not taxed as ordinary income. Unlike some retirement plans, a whole life policy-holder has access to their cash value through loans and withdrawals on a tax-preferred basis. Money in a qualified retirement plan, such as a 401k or pension, is more restricted. Early withdraws, prior to age 59 1/2, are subject to a penalty and are taxed at ordinary income rates.
In addition, beneficiaries receive whole life insurance proceeds upon death income tax free, and in most cases, estate tax free. In contrast, a traditional IRA passes to beneficiaries fully taxable.
Additional Benefits of Whole Life Insurance
There are many other benefits that can be added to your whole life insurance policy. By adding a rider, a provision usually accompanied by an increase in premium amount, to your policy you may be able to increase the safety of your whole life insurance policy. For example, adding a waiver of premium due to disability rider would allow for premium payments to discontinue in the event of disability. Also, an accelerated benefit rider is often available, which would pay the death benefit to the policy owner if diagnosed with a terminal illness.