What does whole life insurance cover

Term life is sufficient for most families, but whole life and other forms of permanent coverage can be useful in certain situations. Only want life insurance to cover a short-term need. A term life policy can replace your income if you die while you still have major financial obligations, such as raising children or paying off your mortgage.

Want the most affordable coverage. Many term life policies can be converted to permanent coverage. The deadline for conversion varies by policy. Buying a cheaper term life policy lets you save what you would have paid for a whole life policy, and perhaps invest the money elsewhere. Can comfortably afford the higher premiums. Whole life insurance is a lifelong commitment, so you want to make sure you can afford it.

If you miss your premium payments, your policy could lapse. Want to leave money for your heirs. Because the death benefit pays out regardless of when you die, you can use it as an inheritance.

If you name life insurance beneficiaries on your policy, the payout will go directly to them and not through your estate. Have a lifelong dependent like a child with disabilities. Consult with an attorney and financial advisor before setting up a trust. Want life insurance that builds guaranteed cash value. The cash value of whole life policies grows at a guaranteed rate set by the insurer. If you need lifelong coverage but want more investing options in your life insurance than whole life provides, consider other types of permanent life insurance.

Universal life insurance earns interest based on current market rates. Variable life insurance or variable universal life insurance both give you access to direct investment in the stock market. As long as you keep paying premiums, the policy will stay in effect. A guaranteed death benefit: The level of the death benefit the amount paid to your beneficiaries is guaranteed never to decrease. A guaranteed cash value: A cash value that is guaranteed to grow at a set rate each year until it is equal to the face amount of the policy at a specified age, typically age or Whole life policies can also earn dividends.

Protection from taxes Life insurance contributes to the welfare of society by providing protection for surviving family members, so it is given the following tax benefits: Income tax-free death benefits A tax-deferred buildup of cash values inside the policy The cash values of life insurance policy additions may generally be accessed on a tax-favored basis through withdrawals or policy loans.

Human life value protection Most people see the importance of insuring the value of property, such as their home or car, so they purchase casualty insurance. Family protection The death benefit of life insurance can help ensure the economic continuity of a family when it is faced with the death of a loved one, by helping provide funds that can be used for: Payment of a mortgage Education funding Income needs Time away from work to care for family needs Business protection Businesses looking to create a business continuity strategy in the event of the death of a partner or key employee have special insurance needs.

Life insurance can help address four major areas of business strategies: The funding of buy-sell agreements and stock redemption plans The funding of supplemental retirement programs Key person indemnification Payment of loans and mortgages E state planning strategies Planning for the orderly transfer of property at death can help to minimize taxes and provide for heirs in a way that reflects your desires.

Whole life can play a vital role by offering: Liquidity to pay estate and inheritance taxes Assets to generate income for a surviving spouse and children Estate equalization among heirs Funding for special needs children Asset utlization One of the unique benefits of whole life insurance is the way that it can help enhance the value of other assets in your estate.

With a charitable remainder trust, these two diverse needs can come together in a plan that may provide: Lifetime income A charity bequest Reduced capital gains tax 9 income tax deductions This can help make it possible to achieve your charitable goals while maintaining a legacy for your heirs.

A permanent estate: Whole life insurance provides a guaranteed death benefit for the entire life of the insured. As soon as the first premium is paid, the entire death benefit is set aside for your family. Tax-free death benefit: The death benefit of a life insurance policy is not generally subject to federal income taxes. Tax-deferred growth: The growth of cash value inside of whole life insurance is tax-deferred while the funds remain in the policy.

This means withdrawals to the extent of cost basis are considered a tax-free return of cost basis. Self-funding: The policy can pay for itself over time by applying dividends to pay premiums. Disability protection: A whole life policy can continue to be funded even if you are disabled. Liability protection: In many states, the benefits of life insurance are protected from the claims of creditors.

The ability to pay loans back from anticipated earnings: Once a policy loan has been taken, the annual dividend can be used to help pay back the policy loan. Collateral for bank loans : Whole life may be used as collateral to obtain a loan from a bank at favorable interest rates, giving you significant financial flexibility.

Generally speaking, there are two basic types of payment structures for whole life: Level premium whole life: This is the most common type of whole life insurance. Search Search. How it works Whole life is a permanent type of life insurance. Protecting your family During your working years, the death benefit can protect your family by replacing your income. You can also buy whole life insurance for your child or grandchild when they are young.

It protects their insurability no matter what happens with their health or career choices in the future; The rates are much lower and your child or grandchild can have permanent insurance coverage for life paid off in just 20 years; and The cash value can be a valuable asset they can use to pay for their future education costs.

Cash values Whole life insurance also provides a way to save for the future. Whole Life Builds Cash Value A whole life policy can serve as a source of emergency funds for you if something goes wrong, or you may be able to take out a loan against the policy.

That's because a portion of each premium payment you make is funneled into a savings component of the policy called the " cash value. Over time, the cash value of your policy increases, and you may have the option to withdraw funds or borrow against it. The rules on how and when you can do this vary by company and policy. Your insurer may also offer guidelines to follow so that you don't inadvertently reduce the policy's death benefit or create a tax burden 1.

The cost of a whole life insurance policy depends on several factors, including how much coverage you buy and other things. When it comes to paying your premiums, you'll typically be able to make a fixed annual payment for a whole life insurance policy. Some life insurance companies may also offer the option to pay monthly, quarterly or twice a year. Be aware, however, that paying premiums more frequently than once per year may incur additional fees.

According to the Internal Revenue Service , you cannot deduct premiums you paid for a whole life insurance policy on your tax return. However, if your beneficiaries receive the death benefit from your policy, they likely would not have to pay federal income taxes on that benefit.

However, any interest earned on top of the death benefit will likely be considered taxable income. So, when might a whole life policy make sense for you? Life Happens says a whole life insurance policy might be a fit for someone who likes predictability over time. This is because whole life insurance offers death benefit guarantees and fixed premiums. If you're considering a whole life insurance policy, it may be a good idea to talk it over with a local agent.