Life insurance is a contract between you and an insurance company that pays a designated beneficiary a death benefit when you die, as long as premiums have been paid according to the terms of the policy. It’s called whole life because it provides lifetime coverage…as long as premiums are paid.
Coverage under whole life policies lasts as long as you live – regardless of age or health at issue – so whole life may be a better choice than term insurance if your family might need protection for more than ten years.
The whole life has both face value and cash value components (much like permanent or universal life). Cash value accumulates tax deferred; this means your whole life policy grows in value on a federal-deferred basis, which means you don’t pay federal income tax on whole life cash value gains until you withdraw them (and even then, your withdrawals are taxed as ordinary income).
Because whole-life coverage is guaranteed to last as long as you live – regardless of health – whole life insurance premiums can be higher than those for term policies. But if whole life is a better choice for your family’s needs than term insurance, the extra cost may be worth it.
Whole Life Insurance Definition
Whole life is one option to consider when looking at different types of whole life insurance. Whole Life Insurance: Cash Value component accumulates tax-deferred which means your whole life policy grows in value on a federal-deferred basis, which means you don’t pay federal income tax on whole life cash value gains until you withdraw them (and even then, your withdrawals are taxed as ordinary income).
Term Life Insurance: Term is pure life insurance protection. It provides coverage for a limited period of time – generally 5, 10, 15, or 30 years – and if the insured dies during that term, the death benefit is paid out to the beneficiary. If you die after the end of the policy term, no death benefit will be paid.
It’s called whole life because it provides lifetime coverage…as long as premiums are paid. So whole life insurance not only pays a death benefit but also builds cash value that you can use while you’re alive.
*Note: This article is meant to provide background information on whole life insurance for those interested in learning about whole life insurance. Although the information provided here is accurate and true to the best of our knowledge, please consult a professional before making any financial decisions or implementing any of the suggestions presented in this article. Please do your own research as well.
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