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Is Whole Life Insurance a Smart Purchase?
A whole life insurance policy can easily be significantly more expensive than a term life insurance plan. Before you buy a whole life insurance policy, talk to a licensed agent about whether it’s a smart purchase for you.
In addition to a death benefit, whole life insurance policies build cash value.
When you make premium payments on a whole life insurance policy, part of that payment goes towards paying your death benefit, and another part is saved. Over time, as you pay premiums on the policy and continue to earn interest, your policy builds a cash value.
Borrowing Against the Cash Value of Your Policy
While you’re still living, you can borrow or withdraw from the cash value of your policy. Some policyholders find this appealing because they can access the cash value while they’re still alive, although it generally accumulates interest and reduces the death benefit until you pay it back.
When Is It a Good Investment?
If you have the ability to pay the higher premiums consistently, there can be advantages to owning a whole life insurance policy. A whole life policy may be beneficial for you if:
- You’ve maxed out your other tax-deferred investment options (401k, IRA, Roth IRA)
- You want to use it for estate planning purposes because you’re set to owe federal or state estate taxes on your assets
For more information about life insurance, read through some of our guides below.
- Affordable Life Insurance
- Can You Have Two Life Insurance Policies?
- What Does Whole Life Insurance Cover?