Permanent, Whole Life Insurance

When purchasing whole life insurance, you need to understand the benefits and disadvantages as compared to term life insurance. At Jacob Financial Partners, LLC we recommend that if purchasing insurance, you compare the price of all types of life insurance and consider your personal situation when determining if permanent insurance if best suited for you and your family. The rates that you pay for permanent life insurance are typically higher than those of other life insurance such as term life insurance. Unlike term life insurance which is generally for a specified amount of time, ten or twenty years for example, whole life insurance covers you for an entire lifetime as long as the premiums are paid.

With whole life insurance, a portion of your premium is applied toward the insurance of your policy, and a small portion of your premium goes toward the investment or cash value of your policy. Unlike term life insurance policies, you do have to die to realize some portion of your investment. With whole life insurance, you are paying higher premiums early in your life to offset the increased cost of coverage at an older age.

Accumulate Cash Tax Free

One advantage of this type of policy is that it accumulates cash value tax free until you decide to withdraw that cash from the policy. In addition, if a whole life policy is puchased early in life it can be used as a forced savings plan. Although some may argue that term life insurance is a better choice for pure insurance, it does not act as an investment vehicle and only has a benefit upon death. Whole life insurance can be a great option for those who lack the discipline to invest on their own.

Permanent, whole life insurance is either participating or nonparticipating. With a participating whole life policy, after all the claims and expenses of the insurance company have been paid for a given policy year, the policy owner is entitled to “participate” in any surplus that remains. Dividends are not guaranteed and there are no income taxes paid on life insurance policy dividends. On the other hand, nonparticipating policies do not pay policy dividends and are credited with a stated interest rate similar that changes annually.