So you’re wondering if you should get full life insurance, even if it costs a lot more than term life insurance. In this guest post, our partner Policygenius shares the top reasons to buy full life insurance. With Policygenius you can get real insurance quotes in one place.
Life insurance is permanent coverage that lasts your entire life. If you have a strong disposable income and are looking for additional ways to invest, this can serve as financial protection for your family throughout your life and as a low-risk savings or investment vehicle.
Here’s how whole life insurance works. In exchange for premiums, your insurance company will pay a tax-free death benefit to your loved ones if you pass away. Most life insurance policies also contain a cash savings component. This comes with additional financial benefits that you can use for the rest of your life.
Life insurance is not the most popular of life insurance. Term insurance is usually the better choice for most people because of its simplicity and affordability. However, it is helpful to learn about the circumstances that can make whole life insurance a better choice.
Whole Life Insurance Fast Facts
When you want to take out life insurance
Below are the circumstances in which term life insurance instead of term life insurance is more appropriate.
1) You are a wealthy person with a large estate
When your estate exceeds $12.06 million per person or $24.12 million for married couples, you must pay federal estate taxes when you die. The tax rate will likely be 40%. The exemption amount is lower in some states and Washington DC
“The property tax consumes what you can give to your children when you are gone,” said Anthony He, Policygenius Sales Operations Manager. Instead of having your heirs pay those taxes themselves, you can get a full life insurance policy that can be used to pay the estate taxes when you’re gone.
In addition to financing estate taxes, high net worth individuals can use a whole life insurance policy to transfer wealth without increasing their taxable assets. In other words, your entire life insurance benefit can go directly (tax-free) to your beneficiaries without the added stress or complications of probate or other legalities.
2) You are saving for retirement and have maximized other accounts
High net worth individuals who have reached retirement savings thanks to 401(k) and IRA income limits can also take advantage of whole life insurance.
Life insurance should never be your primary retirement savings. But it can complement a robust retirement plan if you’ve maxed out other options. Whole life is a low-risk alternative to add more to your savings and accrue tax-deferred growth.
The cash value of a whole life insurance policy grows steadily over time, usually at a slower rate than investments in the stock market or mutual funds. These lower interest rates (yields) may appear negative. But they can be more stable and less volatile than the cash investments for your 401(k) or other retirement accounts.
If you’re retiring and the market is having a bad year, withdrawing money from your entire life insurance policy can be a good alternative.
3) You are a parent buying life insurance for your children
Parents with huge disposable incomes may want to consider buying life insurance for their children. It’s a similar idea to opening a Roth IRA for detention or making an investment while your kids are still young. A lifetime policy with a cash value component will have more time to build.
“A whole life insurance policy for children is like a financial edge. When a child eventually becomes financially independent, the parents can transfer ownership of the policy along with any accumulated money,” he adds.
Two major benefits of buying life insurance for your child are time and money. While it takes a long time — sometimes 10 years or more — for the cash value of a whole life insurance policy to build up, time is on their side by getting a life insurance policy for your child when they are younger.
The policy will have a higher interest rate than a policy they bought later in life by the time they finish school. Once the cash value has been built up, your child can take out a policy loan against it. Or they can use the reserves to pay premiums, or surrender the policy for cash when they no longer need it.
Life insurance prices rise as we age. “Whole life insurance is an afterthought if bought late,” he says. Buying life insurance for a young child will lower the price for a permanent policy. It will not become more expensive over time.
4) You are a caregiver of a lifelong dependent
If you are caring for an elderly parent, adult, or child with disabilities who needs lifelong financial support, full life insurance may be a good option because it never expires. About 15% of the world’s population has some kind of disability.
By naming your dependent, a trust, or other caregiver as a beneficiary, you can ensure that your loved one gets the support they need. Naming a trust or caretaker as a beneficiary of your entire life policy is best if your dependent is unable to manage their own finances. Or if your child has reached the age of majority in your country, which can complicate the payout process.
5) You have a business with a purchase-sale agreement
A key person insurance policy is a life insurance policy for an executive member of a company. The company is the beneficiary and pays the premiums. Key Person Insurance is recommended for business owners, CEOs, and business partners whose death would negatively impact their business.
To bolster this type of life insurance, buy-sell agreements are a must for business owners and partners. This type of agreement sets the price, terms, and conditions for any remaining business partners to purchase the deceased (or departing) partner’s stock if something happens to them.
Full life insurance can be used to finance a buy-sell agreement. This allows the remaining business stakeholders or partners (including surviving relatives unrelated to the business) to use the death benefit to purchase remaining stock upon the death of the insured and avoid the use of cash.
This kind of policy can get complicated. It should be set up in consultation with a professional financial planner and your licensed life insurance agent.
6) You are an adult with a disability
A lifetime policy is also a good option for adults with disabilities or medical conditions that are likely to worsen with age. This is especially true if you know that you will have financial dependents after retirement and beyond. Full life insurance provides lifetime coverage and stable premiums regardless of advanced medical needs.
If you have or are expecting a child with a severe disability, full life insurance can be vital. Some children need care for the rest of their lives and that can be very expensive.
7) You want life insurance that never expires
Life insurance is great for people who prefer a “set it and forget it” approach to financial planning. And it avoids the stress of undergoing medical examinations and acceptance in old age. In addition, you can also set convenient, automatic premiums so that you never miss a payment.
For those who have term insurance, keep track of when the coverage ends. You can always convert your term life insurance to full life insurance to maintain your health rating. However, it’s just another process that you have to go through.
Personal thoughts on life insurance
In hindsight, I probably should have taken out whole life insurance when I was 30, the best age to get life insurance. At the time, I had a lot of disposable income in the financial world. Furthermore, I had the highest health rating, which would have locked me in for life at the lowest premium.
If I had taken out a whole life insurance policy in 2007, the cash value would have skyrocketed by now. Furthermore, I did not have to go through the process of finding a new life insurance policy.
In January 2013, before I had two children, I mistakenly took out only a 10-year policy. The idea was to cover me until my primary mortgage was paid off. But I didn’t expect to have two children.
Now that I’m a dad who has to think about estate planning, it would have been nice to have whole life insurance with a great cash value. Unfortunately, I cannot change the past. My 20 year term life insurance policy that I just took out through Policygenius will have to do. It covers our kids until they turn 22 and 25. By then I hope they will have the maturity to build their own wealth.
I plan to consistently save and invest the difference between the lifetime premiums I would have paid and the death premiums I currently pay. The bulk of the investment will go toward financing both children’s 529 plans. The rest goes to real estate.
Term life insurance is probably the best solution for most people. However, there are certainly good reasons to also take out a full life insurance policy.
Readers, have you ever thought about getting a life insurance policy? Do you or anyone in your family have term life insurance versus term life insurance? Any more reasons to get this more expensive life insurance policy that you can think of?
This post Reasons to get full life insurance even if it’s more expensive
was original published at “https://www.financialsamurai.com/reasons-to-get-whole-life-insurance/”