LifeWork

Whole Life

Whole life insurance is a kind of permanent insurance that stays in force for your whole life (unlike term insurance), as long as you pay the premiums. Whole life insurance combines a death benefit with a cash savings feature. Part of each premium goes to pay for the death benefit, part to pay the insurer’s expenses and profit, and part is placed in an account that accumulates interest over time. You may borrow against the policy’s cash value by taking a policy loan to meet unexpected expenses.

Pros

  • Premiums generally don’t increase with age.

  • Protects you your entire life (if kept) and is not subject to non-renewal.

  • Cash values are guaranteed and you can take out a loan against the policy or surrender it for cash.

  • Cash values grow on a tax-deferred basis; you pay taxes on interest and earnings only when they are withdrawn.

  • The death benefit is not taxed.

Cons

  • Higher cost initially than term life.

  • Long term commitment required.

  • Dividends can be reduced by low interest rates.

  • Cash value accumulates slowly during the first few policy years, so you may lose much of your money if you surrender the policy within 3-5 years from the time of purchase.

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