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  • Writer's pictureMark Roberts

Whole - ly Committed

When someone says they are wholly committed to something, it typically means that individual is "jumping into the deep end of the pool." To be totally sold out to an idea or a task usually means that you are completely involved with the idea and circumstance. You are fully aware of the consequences both good and bad, and you are aware of the possible outcomes that are part of the decision. Or, at least you understand your options and agree in principle if not in fact.

Whole life insurance is a product that presents itself in a similar fashion. You can purchase a policy for yourself or others that is fully committed to protecting assets including property and people. Yes, there are certain restrictions and guidelines within the insurance industry that outline the parameters of what whole life insurance does and does not include. However, the insurance company and the policy are fully committed to cover all of what is included in what you purchase.

That's the law. You are making a binding contract between you and the carrier that ensures what is and what is not covered. Whole life insurance, or whole of life assurance, sometimes called "permanent life," "straight life," or "ordinary life", is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date. There are various versions of this insurance product.

Whole life insurance guarantees payment of a death benefit to beneficiaries in exchange for level, regularly-due premium payments according to Investopedia. The policy includes a savings portion, called the "cash value"alongside the death benefit. In the savings component, interest may accumulate on a tax-deferred basis. Growing cash value is an essential component of whole life insurance.

To build cash value, a policyholder can often remit payments greater than the scheduled premium to purchase extra coverage (known as paid up additions or PUA). Policy dividends can also be reinvested into the cash value and earn interest. Over time, the dividends and interest earned on the policy's cash value will provide a positive return to investors, growing larger than the total amount of premiums paid into the policy.

The cash value offers a living benefit to the policyholder, meaning the policyholder can access it while the insured is still alive. To access cash reserves, the policyholder requests a withdrawal of funds or a loan. Withdrawals are tax-free up to the value of the total premiums paid. For a deeper dive into whole life insurance, you can visit this website:

In 2020, according to the American Council of Life Insurers, 59% of individual life insurance policies issued in the U.S. were whole life policies. Although the face value varies by policyholder, the average face value for individual life insurance policies, including whole life, purchased in 2020 was $183,780, per the ACLI.

When you first purchase whole life insurance, the premium payments, which are locked-in for the life of the policy, will likely be higher than those for a term policy with the same amount of coverage. However, if you purchased a term life policy and renewed it after expiration, it’s likely the premiums for the renewed policy would be more expensive. With some whole life insurance policies, you have the option to pay over a shorter duration, such as 20 years or until you reach age 65, according to US News & World Report.

With this in mind, your premiums for a renewed term policy could be even higher. Because whole life insurance policies also accrue a tax-deferred cash value over the life of the policy, they could be considered an investment. Depending on the terms of your policy, you could withdraw money to use for such expenses as college tuition, buying a car, or paying for home improvements.

How much you could withdraw depends on the amount of premiums you’ve paid thus far. If you are able to withdraw more than your available funds, then the amount that exceeds the cash value will be taxable. If you do withdraw some of the cash value in your whole life policy, it would reduce the death benefit paid to your beneficiaries. If you withdraw the entire amount, your policy will be canceled.

You also may have the option of taking out a loan against the cash value of your whole life policy. The policy loan will accrue interest until it’s paid off. You can choose to pay off the loan yourself, or wait and have the loan paid off with funds from your death benefit. More information on this topic is available at this site:

You are unique, and so are your life insurance needs. While term life policies are the most popular life insurance option due to their lower premiums, they are not the only option – for a reason. For example, what if you need permanent, lifelong coverage? Or you want a policy that can help build your financial assets? Depending on your budget and needs, whole life insurance policies offer several benefits to consider before buying coverage.

There are several kinds of permanent coverage: however, whole life insurance is the simplest and most popular. While the premium is more expensive than for term life insurance, the list of whole life insurance advantages is significant:

  • Your whole life premium stays the same for life. The fixed premium of a term insurance policy typically ends after 10, 20, or 30 years. And with some other types of permanent coverage, the premium cost can go up later. But with whole life, the premium you pay when you take out your policy never increases. The younger and healthier you are when you take out your whole life coverage, the lower your rates will generally be – for life.

  • You build cash value at a guaranteed rate. A whole life policy has a tax-deferred cash value that grows at a guaranteed rate every year.

  • Your death benefit is guaranteed. With some other forms of permanent life insurance, the death benefit may vary based on how well the policy's market investments and cash value fare. With whole life, your policy is guaranteed to pay out at least the face value.

  • You may receive dividends. If you purchase whole life insurance from a mutual company, you may also receive dividends. Mutuals are owned by their policyholders, so annual profits can be redistributed as dividends each year that there is a profit. That has consistently been the case with this type of whole life policies. Those dividends can be distributed as cash, used to pay premiums, or reinvested in your existing whole life policy.

Like any other financial product, whole life has advantages and disadvantages, along with some unique features. It provides permanent coverage, guaranteed premiums that don't increase, has guaranteed cash values, a guaranteed death benefit, and offers possible dividends. However, it is typically more expensive than most other policies, and the cash value growth may be more limited than other permanent policies depending on the performance.

Whether whole life insurance is worth it depends on your life situation and goals. If you want protection that lasts your entire life, then a whole life policy from a reputable provider can be an option to consider for your needs. It can also be worthwhile for older people concerned about estate planning strategies and reducing the effects of taxes on their heirs. This type of life insurance product should be an important part of your overall financial goal in your planning process.

As a licensed insurance agent, I have multiple options for you to consider for you and your family as you build your financial program Visit this website to learn what products are available: Protecting your most valuable assets and planning for the future is where I can help personally guide you through the questions you may have as you put your financial program together.

If you are an employer or small business owner considering benefits to provide to employees, whole life group policies offer a great way to attract and retain talent. Reach out soon to have a dialogue about investing in your employees with this product. You may also want to consider using life insurance to fund a buy-sell agreement with business partners or putting key man policies in place with your best and most valuable executives or managers using this type of insurance.

As Life Insurance Awareness Month is coming to a close this week, contact me soon to begin a conversation about whole life insurance.

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