Plastic water bottles, cardboard boxes and even life insurance protection seem disposable these days. Thankfully, many of our used-up consumables are recycled, which is great for our natural surroundings. But when it comes to life insurance, what is a sustainable approach?
There’s term insurance, and then there’s permanent insurance. If you are looking for permanence, you can’t get it with term life insurance, because the premiums increase, often dramatically, after the initial term of years, whether after one year, two years, or more depending on the policy. And, at that moment in time, you have to make the call whether to renew your coverage—most likely at a higher premium—or walk away.
I’m not suggesting term is the wrong choice for everyone. On the contrary, it’s usually the most affordable option for people who may be on a tight budget. An alarming 63% of people cited “it’s too expensive” as the reason they own zero life insurance of any kind, according to LIMRA’s 2018 Insurance Barometer Study. So, if term fits your needs, any form of coverage is always better than none.
The Whole Picture
So, what if you want something more permanent? That’s where whole life insurance comes into play. In the land of life insurance, it is the original type of permanent coverage. You typically won’t find these policy types pushed on late-night TV commercials or billboards. They are not cookie-cutter policies made for the masses. Rather, each one is customized to different situations ranging from a young couple just starting out or single parents to those nearing retirement age or who own a small business.
Depending on your goals, whole life can truly check all your boxes with its wide menu of benefits, which include:
- Guaranteed death benefit – The whole life policy you buy is the policy you will always own, period, assuming you meet your premium obligations.
- Guaranteed cash value – Over time, the policy builds a guaranteed amount of cash value1, and it will never go down, unless you tap into it, which leads to the next two benefits.
- Access – Because it builds cash value, whole life policies can be another go-to source for needed funds, whether through policy loans and withdrawals2, or just as collateral if you’re applying for a home, auto or small-business loan.
- Accelerated Benefits – The industry’s better whole life policies typically offer Accelerated Benefits Riders3. These are optional features, usually at no added cost, that allow you to access all or part of the death benefit while you are living to help financially during a qualifying terminal, chronic, or critical illness. You can use the funds for just about any expense, although some states have different rules about that.
- Level premiums – Many whole life insurance owners love the predictability of knowing how much their policy will cost them for the rest of their lives. And some whole life products offer ways to fully fund the policy sooner than later (paid-up options), which many use when their financial situation allows for it.
- Policy dividends – Although dividends are not guaranteed, whole life policies can offer a policy owner the ability to participate in them if they are issued. Even better, dividends can be taken in cash or applied to increase the death benefit, add to cash value, reduce or eliminate premium payments, or go toward any policy loans.
In this disposable age, some things should be built to last, and a financial plan is one of them.
With just a little homework and the advice of a helpful financial professional, you can explore how permanent life insurance can make a positive contribution to your bottom line, and give you a feeling of permanence in a disposable age.
1 Guaranteed cash value accumulation assumes that all planned premiums are paid, and that the cash value illustrated is based on only guaranteed values. Actual results may be more or less favorable for values that include non-guaranteed dividends.
2 Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Whole life insurance policies typically have very little available cash value during the early years of the policy.
3 Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event, may affect your eligibility for public assistance programs, and may reduce or eliminate other policy and rider benefits. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you. Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.