What is Cash Value in Whole Life Policies?
The premiums paid for whole life policies cover more than the insurance and administration cost, and the extra amount paid goes into a tax-deferred savings account. As more money is paid into the savings account and as the account collects interest, the policy builds up a “cash value.”
The cash value of a whole life policy is the accumulation of the policy's investment portion. These are the funds that can be used in later years to pay for living expenses (or other costs), and some policies allow you to borrow against the cash value of a policy. Borrowing can allow you to access a policy’s cash value should you face a financial emergency before retirement.
What Tax Benefits Do Whole Life Policies Offer?
The savings accounts within whole life policies are tax-deferred, which means income taxes are only paid on the funds when money is withdrawn. Money can be invested into a policy’s savings account and grow in that account without paying taxes (until the money is withdrawn).
Deferring taxes allows money to grow faster than if taxes had to be paid on the account when funds were deposited, as is normally the case with standard savings accounts and many other investment products.
How Does Whole Life Coverage Differ From Term Life Coverage?
Whole life coverage and term life coverage both normally provide death benefits, but there are two notable differences between them.
First, term life policies generally don’t come with savings vehicles. Policyholders usually can’t take advantage of a tax-deferred savings account within the policy, as they can with whole life policies.
Second, term life policies are so-named because they generally last for only a finite amount of time. They don’t typically last for a policyholder’s entire expected or actual life span, and they don’t pay death benefits if a policyholder passes away after the policy’s term expires.
While there are notable advantages to whole life policies, both whole life and term life policies have their place in end-of-life planning. An insurance agent who specializes in these policies can help residents determine which type of life insurance best meets their needs.
How Much Does Whole Life Coverage Cost?
Whole life premiums are structured so that they increase as a policy progresses. This can help keep the policy’s initial premiums quite affordable, and the higher premiums later on are often quite affordable. Although the premiums can become high if a policyholder lives long enough, the policy’s cash value savings also grow and accumulate. In many cases, the interest generated from the savings investments can cover all or most of a policy’s premiums later on.
How Can Massachusetts Residents Get Whole Life Insurance?
For help comparing whole life insurance quotes, contact the independent insurance agents at Paul T. Murphy Insurance. Our agents can help you request quotes from multiple insurance companies in Massachusetts, and we’ll help you find the best policy that provides the protection you want.
.png?width=145&height=64&name=Arbella_Insurance_Logo%20(1).png)