What is Whole Life Insurance?

Whole Life Insurance is a type of permanent life insurance.  It lasts the duration of your life, as long as you are paying your premiums on time either out of pocket or with the cash value that’s accumulated within the policy. It’s designed to provide financial protection for your loved ones in the event of your death.

The biggest difference between whole life and term life is a that term life insurance ends after a set number of years.  It offers a death benefit and nothing more.

Whole life costs more because it includes an extra savings component and your death benefit increases over time, so it keeps up with your growing needs.

How does the Life Insurance component work?

The Death Benefit is a tax-free lump sum payment that is paid out by your insurance company when you die.  For example, if your policy has a $500,000 coverage, the $500,000 is the guaranteed death benefit.  There is also a cash value component (more on this below) which increases the death benefit every year as long as the cash value stays in the policy.

The beneficiary is the person or persons that will receive the death benefit.

Premiums are how you pay for your policy.

Whole Life Insurance means it lasts for your whole life, as long as the premiums are paid.

How does the cash value work?

When you pay for your life insurance premiums, a percentage goes into a tax-deferred savings component.  This is known as the ‘cash value’ of the policy, and it is in the form of dividends paid yearly.

You can access the cash value of your policy in 3 different ways:

1-You can withdraw which will attract some tax.

2-You can take a policy loan through the insurance company.  This will accrue interest until you pay it back.  If you die before you pay it back, the amount owing will be deducted off the death benefit.

3-You can apply for a collateral loan through the bank, which attracts no tax and interest only.  Currently some institutions offer the ability to capitalize the interest so you don’t pay it regularly, it just gets added onto the loan balance and it’s paid to the bank on death from the death benefit of the policy.  It’s a tax-free wealth transfer strategy, especially for Corporate business owners.

The cash value of your whole life insurance is separate from the death benefit.  Your beneficiaries will receive the death benefit and the cash value on death.

How much does It cost?

Since whole life insurance is a permanent policy, it is more expensive than term life insurance.  However, since there is a cash value component of whole life, you can recapture some of that money that you have paid into your policy.

Have questions on whether Whole life insurance is right for you?  Connect with us and we would be happy to review your possibilities!