What is whole life insurance, and what is term vs whole life insurance? This is a question many people ask. In this article, you’ll find whole life insurance explained, as well as whole life insurance pros and cons and some information on term life insurance and tax exemption.
So, What is Whole Life Insurance?
Simply put, whole life insurance is a special type of life insurance. It is permanent life insurance, specifically. And because a whole life insurance policy is permanent, the coverage it provides will be in place for the entirety of your life.
One unique thing about whole life insurance is that any whole life policy premiums will stay at the same amount throughout the entire duration of the policy. And another unique thing about whole life insurance is the fact that the younger you are when you buy a whole life insurance policy, the more inexpensive the policy will be.
A further thing you should know about whole life insurance is; the beneficiary of your whole life insurance policy will acquire your entire benefit amount when you die.
What’s Good About Whole Life Insurance?
As we previously mentioned, with whole life insurance, your policy will be less expensive depending on how young you are when you buy it. This makes whole life insurance quite a good option for some young people to begin one early.
Whole life insurance can also offset the payable taxes on your RRSP, decrease the impact of the taxes on your other taxable assets, like your cottage’s capital gains tax if it increases in value, and cover your final expenses.
As well as this, if you die, whole life insurance can replace the future income that would otherwise be lost, and cover your final expenses – we’ve written more on this in the next paragraph.
How Does Whole Life Insurance Protect My Family?
So, whole life insurance certainly holds plenty of benefits for you. But what about your family? How can whole life insurance also help your family out?
Well, did you know that whole life insurance has a death benefit? This death benefit can help your family out by replacing your income’s entire amount for the entirety of your working years.
Or, when you retire, the death benefit that comes with whole life insurance can also aid you by providing a completely tax-free inheritance. If you want, you also have the option of giving this tax-free inheritance to a favourite charity.
The death benefit can even assist in covering your children’s education costs, or help with paying your policy’s premiums in the future.
Of course, you are also able to set aside your death benefit to help with the cost of funeral expenses and taxes.
Should a Minor get Whole Life Insurance?
Want to maximise the effect of whole life insurance being cheaper based on how young a person is when they obtain it? Why not then purchase whole life insurance for a child or grandchild? After all, whole life insurance has numerous advantages for a child.
So, what are some of the advantages of whole life insurance for a minor? Well, as we previously touched upon, the rates for a child’s whole life insurance are incredibly low. These rates are so low that a child’s insurance coverage for life can be paid off by only 20 years!
On top of this, a minor will be able to pay for their future education costs with the cash value of their whole life insurance.
As well as this, whole life insurance will protect a child’s ability to get insurance at a later date regardless of their future health or choice of career.
Why is there a Cash Value?
A whole life insurance policy always creates a cash value, but why? Where does this come from?
Well, the money you pay into your whole life insurance premium gets invested by your chosen insurance provider, and the income this generates earns your policy a cash value that you can use in various ways in future.
What Can I Do With a Cash Value?
As we mentioned previously, your whole life insurance policy’s cash value gives you a great way to save for the future.
When you retire, you could use your whole life insurance cash value to supplement your income or to help with expenses.
What About Term Insurance?
So, that’s all about whole insurance. But what about term life insurance? What’s the difference between whole life insurance and term insurance?
Well, term insurance is always a temporary form of insurance. It is mainly aimed at young families, homeowners with a mortgage and business owners.
Term insurance policies are one of the least complicated, easiest policies to understand. They offer a fairly exhaustive amount of coverage and are very affordable.
However, the coverage term insurance provides is always temporary, usually only lasting for 10, 15, 20 or 30 years. And if you want to renew your coverage after your term ends, the cost of renewing goes up by a fair amount.
But if you are young, and only need temporary coverage until your children are no longer financially dependent on you, or until your mortgage is paid off, for example, term insurance can make a good option.
Plus, term insurance can supplement the insurance you get from work, and you can even convert term insurance to a different form of insurance when your term expires.
Do I Need an Advisor?
If you are considering going for whole life insurance, for yourself or on behalf of someone else, consulting with an advisor throughout the process is something that will guarantee you making the best decision on what to do.
What about tax-exempt life insurance?
Did you know that some people qualify to buy life insurance through Immediate Financing Arrangements? If you buy your life insurance in this way, you only pay the cost of the policy’s interest.
Since the insurance policy’s interest is a tax-deductible cost, your own money is free to stay in your business investments or real estate. Check out wealthinsurance.com to find out more about this.
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