Whole Life Insurance Pros and Cons

But First…What Is Whole Life Insurance?

Whole life insurance covers you for your entire life, no matter how long that may be. When you die, your insurer will pay the death benefit to your beneficiaries (income-tax-free, in almost all cases).

Like all permanent policies, whole life also contains a cash value account. Attached to your policy, the cash value functions like a savings account. A small portion of every payment you make gets put into this account. There, it grows over time with a guaranteed interest rate set at the time you buy your policy. Whole life policies are designed so that the cash value is intended to equal the amount of the death benefit by the time you reach age 100.

It can take a few years for your cash value to really start growing. That’s why some insurers only make it available to you after 2-5 years. The longer you’ve owned your policy, the more time your cash value has had to grow. If you buy a policy in your 20s or 30s, for example, and let it grow for another 30 years, it can provide a substantial source of supplementary retirement income later in life.

You can access that cash without paying any income tax, up to the total amount you’ve paid into the policy. If you withdraw more money than your cash value contains, it will reduce the death benefit that goes to your loved ones when you pass away.