Whole Life Insurance As An Investment
There are few investments which are as secure as the equity or cash value in whole life insurance. Since the money for your whole life insurance cash value is deducted from the life insurance rates you pay, whole life insurance also provides an enforced method of saving. Whole life insurance as an investment pays interest on your savings account, and is guaranteed in the policy contract. Although whole life insurance as an investment fell out of favor during the stock booms of the 1980s and 1990s; in uncertain economic times like now, it has regained favor as a nearly risk free investment that offers higher returns than a standard savings account at your bank.
Whole Life Insurance Is A Long Term Investment
Those who choose whole life insurance as an investment should be aware that it is a long term investment and returns, while steady, are not comparable to hedge funds, mutual funds, bonds, or the stock market overall. Whole life insurance policies pay between 1% and 3% interest on the policy’s cash value, and thus provide a risk-free investment for family’s looking to save money that can be readily available in case of emergencies.
However, your whole life insurance cash value builds over years and provides an excellent way to save for your child’s college, a down payment for a home, or nest egg for retirement which are years in the future. One advantage of whole life insurance is that up to 90% of the equity can be used as collateral to secure a low interest loan. A whole life policy allows the insured person to have ready access to cash without canceling his or her policy.
Obviously, the other advantage of whole life insurance as an investment is that, unlike bonds, equities, or other types of investments, whole life policies also offer life insurance protection, paying out the death benefit if the policyholder dies. Though the whole life insurance policy’s cash value can become a sizeable lump sum, the real benefit is that, while you are saving money, your family has life insurance coverage that ensures their financial well-being in case anything happens to you, or the breadwinner of the family.
Whole Life Insurance Pros and Cons
Life Insurance Taxes. Whole life insurance can be used as a tax shelter since the returns on life insurance policies are tax deferred until they are pulled out of the life policy. Individuals in higher tax brackets will appreciate this feature and the potential tax savings. The disadvantage here is that returns on life insurance equity are subject to income tax when withdrawn, which may be as much as 35%, while the returns on investments in financial markets are subject to capital gains tax of 15%. Loans taken against policy equity are not considered income and are not taxable.
Estate Planning. The advantage of whole life insurance in estate planning is in the death benefit rather than the long term investment value. The death benefits of life insurance policies are tax exempt so a whole life insurance policy can provide money for heirs to pay estate and income taxes. This insures that the heirs will receive the full amount of the estate that an individual worked a lifetime to accumulate. The whole life insurance cash value can be used for loans while the insured person is alive.
Whole Life Insurance As An Investment For Children
While few people consider buying life insurance for children and infants, a whole life insurance policy is an investment in a child’s future. Life insurance rates for children are really cheap and the cash value will grow as the child grows, and the benefit of whole life insurance is that rates are fixed, and stay low for the child’s lifetime. When the child reaches his or her majority, the equity in the whole life insurance policy can provide money for education, a car or even the down payment on a house. Whole life insurance is an excellent and affordable way for parents or grandparents to provide a nest egg for children.
Whole Life Insurance Quotes
While whole life insurance provides protection for families in the event that a wage earner dies prematurely. Whole life insurance as an investment also gives consumers an investment option that is secure, risk-free, and guarantees a steady interest rate higher than their bank. Whole life insurance as an investment is a good way to plan to meet future expenses and offers tax advantages over other types of investments.
Although whole life insurance rates may not be as cheap as term life insurance, whole life policies are permanent with fixed rates, and other insurance policies do not offer the risk-free investment potential of whole life. Enter your zip code to start comparing whole life insurance quotes now and find the cheapest rates with the best coverage.
