Something my dad always used to say to me was to read the instructions first. As a child, I would plow through projects anyway, to varying results. And typically, I'd find myself thinking about how right he was.
There were things I didn't know that I didn't know, and reading the instructions were the only way to learn.
Whole life insurance is a valuable asset and a complex one. And before you commit, there are things you should know. You want to read the "instructions." By this, I mean you want to read the fine print, read the contracts, and ask your insurance agent as many questions as you can. The more knowledge you have, the more you can effectively use the asset, and purchase the right policy for you.
Some Questions You Can Ask
Since you don't know what you don't know, here are some questions that you can ask to learn more about whole life insurance (and some quick answers, too).
Why is Whole Life Insurance More Expensive?
Many people write off whole life insurance as "more expensive" without asking why. They don't realize how different whole life insurance and term insurance are, and that they serve different purposes.
Term insurance is meant to be temporary, and provide supplemental coverage for riskier periods of your life. Since it goes away and is statistically unlikely to pay out, it's not very expensive.
Whole life insurance is permanent and lasts for your whole life. It's guaranteed to pay out to your heirs or estate. Because of this, it has a higher cost. Even so, that cost is less than the benefit you're paying for.
Why Do You Want to Work With a Mutual Company?
Your whole life insurance experience will be different depending on if you work with a mutual company or a stock company. Whole life insurance comes with a cash value component, which is the "equity" of your Death Benefit. As you pay premiums, your equity in the policy increases and is available for your use.
This cash value can also increase through interest earned, and dividends, if you work with a mutual company. This is because a mutual company is owned by the policy owners, and profits must be shared with all policy owners.
Alternately, a stock company is owned by shareholders and is not required to share any profits with policyholders.
What Are the Tax Benefits of Whole Life Insurance?
Whole life insurance is also a tax-advantaged asset. When you own a policy, your cash value grows tax-deferred. However, you can access it in a tax-free way by using policy loans and repaying them. So long as you do this, you aren't taxed on any proceeds, as you would be if you withdrew money from your cash value beyond your cash basis, (aka) more than your total premium payments.
The Death Benefit also passes to your heirs tax-free, which helps the transfer of wealth be efficient, and helps when you have a large estate tax due upon your death.
Have More Questions?
I'd be more than happy to answer any questions you have about life insurance, just contact me in one of the following ways:
raymond@BlueSkyFinancialFlow.com