Can someone explain what a permanent whole-life policy is and if it’s worth the cost?
Thanks in advance…
I’ll give it a shot! So, gather around for a little story.
Once upon a time, there were two friends named Timmy and Wally who loved magical castles. They decided to get one for their families to feel safe. But castles cost money, so they had to use their allowance.
Timmy rented a castle, paying a small fee each month, but he had to keep paying or else he’d lose it when the time ran out.
Wally, on the other hand, bought a smaller castle for more money each month. But he knew that by doing so, he would own it completely someday. If something happened to Wally, his family would still have the castle.
So, Timmy’s rented castle is like Term Life Insurance, while Wally’s castle is like Whole Life Insurance. Wally’s choice means his family will always have a safe place, no matter what happens.
Both friends were happy because they got what they needed!
@Ori
Thank you so much for this awesome explanation! You really made it clear.
Jules said:
@Ori
Thank you so much for this awesome explanation! You really made it clear.
Happy to help!
@Ori
Super creative way to explain this! I love it.
With Whole Life insurance, you pay a fixed premium every year, and it won’t ever go up.
Your premium buys life insurance and also builds cash value, which is basically what the policy is worth now. If you decide to leave, you get back the cash value.
Over time, as the cash value grows, the risk amount shrinks, and you can even get dividends as your policy’s value increases.
Plus, the insurance company invests your premiums wisely, so your cash value is safe from market ups and downs, and it grows at a steady rate. Policy loans are tax-free too, and the payout is tax-free when you graduate.
@Phoenix
Really great explanation, thanks!
There are generally two types of whole life policies:
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Protection-oriented: You pay more now for insurance because you want to protect someone well into old age, like a child who needs support for life.
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Accumulation-oriented: You want a tax-efficient way to earn money that does better than municipal bonds, like high-yield savings accounts or bond funds.
I’ve found some useful info on this topic at Nerd Wallet:
To put it in simple terms: you get a policy that earns cash, and your payments stay the same each year. The policy amount is usually lower compared to other types of insurance, but you get cash value and a fixed premium.
Edit:
Oh, and is it worth it? Short answer: yes. Long answer: it depends on your financial situation, age, and health.
@Blair
Short answer is no. Long answer is definitely no.
A permanent whole life policy is basically money set aside for your loved ones when you pass. It helps cover costs like funerals and other final expenses.
Funerals can cost between $10,000 and $20,000. I paid $13,000 for my late husband’s cremation. Traditional burials are more expensive, with costs for the plot and tombstone adding up.
Final expenses can include debts, house payments, medical bills, and everyday expenses.
Many people choose whole life insurance to make sure their loved ones don’t have to scramble for money when they pass.
This kind of policy lasts forever and doesn’t change once you lock in your rate. The rate depends on your sex, age, and health, so getting it when you’re younger is better. A whole life policy pays out whenever you pass, no matter when it is.
Some people get larger policies to give their loved ones financial help for things like a home down payment or college expenses.
It’s really about your situation. For example, if a stay-at-home mom dies, her husband might need help with childcare and housework. Life insurance can help with those costs.
Whole life policies also build cash value, which is like a savings account that grows over time. A part of your payments goes into this account, and you can withdraw from it whenever you need. You won’t be denied since it’s your money. Walt Disney even used money from his policy to start Disneyland! You can choose to pay it back, or not. If you have a $100,000 policy and withdraw $25,000, your beneficiary will receive $75,000.
One type of permanent policy is an index universal life policy. This type has a zero floor, so if the market drops, your cash is safe, unlike stocks. You still earn dividends and interest without the stress of market fluctuations.
- If the market goes down, your cash stays safe. You can still earn competitive interest tax-free.
- Your cash grows with tax benefits. That’s important since the IRS might increase capital gains taxes.
- Your cash is safe from creditors and legal claims.
- You can borrow against your policy up to 95% of the cash value, and you set your payment terms. I bought a car this way and still made money from my cash.
- You can also use your cash to create a tax-friendly income stream for retirement without triggering IRS issues.
- Your policy can pay out early for long-term or critical care while you’re alive, so you won’t have to sell assets and pay taxes for care.
@esleystanley
Just to clarify, this isn’t a whole life policy.
It’s categorized as permanent, but a whole life policy has guarantees that a universal life policy doesn’t have.
It’s neither good nor bad, just different.
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Poe said:
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