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Is Whole Life Insurance an Asset
Is whole life insurance an asset? Yes, thanks to the power of cash value accumulation. We’ll explain what that is, and what makes whole life’s cash value different – and, to many, more valuable – than other types of life insurance.
First, let’s go over what a whole life insurance policy consists of. Whole life offers plenty of helpful features:
- Lifelong coverage. Whole life does not expire, unlike term policies. That means that as long as you keep your policy current, no matter when you pass away, your beneficiaries are guaranteed to get the death benefit. This feature is common to all permanent policies.
- Income-tax-free death benefit. You get to select one or more beneficiaries to receive the tax-free cash payout when you pass away. If you do select more than one, you can also specify what percentage of the death benefit each beneficiary should get.
- Level payments. The amount you pay for the policy will never change over time. Whether you pay monthly, semi-annually, or annually, that amount will be the same every time that bill is due. This makes balancing your budget a lot easier, especially if you’re living on a fixed income later in life.
- Guaranteed cash value growth. A portion of every payment you make goes into a cash value account attached to your policy. Think of this like a savings account that grows over time, both with your payments and a guaranteed interest rate paid by your insurer. That rate is locked in and guaranteed at the time you buy your policy. When people ask us, “Is whole life insurance an asset,” this is the reason that makes the answer yes.
- Living benefits. Most insurers will let you access the death benefit if you happen to be diagnosed with a terminal illness. It’s a good safety net to have if you end up in this scary situation.
- Optional riders. Most insurers also offer a number of policy add-ons (called riders) that let you purchase extra coverage options. Common riders include chronic illness, critical illness, and long-term care riders, which all allow you to access the death benefit if you experience a qualifying illness. It’s another good safety net to have that can help pay for treatment, care, or home alternations, if you need them later in life.
Want to get a quote for whole life? Call us at (800) 521-7873 and we’ll give you a quote over the phone. Or start with a free term life quote by clicking the button below!
Whole Life Compared to Other Coverage Types
Whole life isn’t the only policy type that covers you for the rest of your life and builds cash value. So what makes it unique? Here are the features that set whole life apart:
- Simplest type of cash value coverage. Whole life is easy to understand because of its guaranteed rate of interest, guaranteed cash value growth, and guaranteed payment amounts. Other types including universal life, indexed universal life, and more have policies have variable rates of interest, variable payment amounts and schedules, and different methods for growing cash value.
- Guaranteed interest rate. The rate your insurer credits your cash value account with is locked in when you buy your policy. It doesn’t matter what the rest of the economy, the Federal Reserve, or stock market may do in the interim. Is whole life insurance an asset? You bet – this guaranteed interest rate is what makes it so valuable. The stability and security of that guarantee can function as a hedge against assets with more volatility, like stocks and mutual funds. Compare that to universal life, which has a variable rate of interest that your insurer can change over time. Or compare it to indexed universal life, where you have the option to tie your cash value growth to the performance of a market index, giving you the chance to grow your cash value faster but with the risk of slow or zero growth. Whole life is the only type of cash value policy with guaranteed growth at a predictable rate.
- Zero possibility of cash value loss. With whole life, your cash value will never decrease in value. Over time, your payments and that guaranteed interest rate will continue building your cash value. Contrast this with variable universal life insurance, where you have the option to invest your cash value in actual stocks or other investment vehicles offered by your insurer. Like any investment, this means you could lose cash value if your investment choices perform poorly. If the idea of loss makes you shiver, the safety and security of whole life will appeal to you.
- Level payments. Whole life has set, level payments that stay the same for the length of the policy. Compare this to universal life, where you have flexibility in terms of how much you pay and when. What’s right for you will depend on your income and your willingness to monitor your account and make sure you’ve paid enough into it to keep it from lapsing. That level of detail isn’t for everyone, and whole life can be a refreshingly simple way to make sure there are no financial surprises.
Want to get a quote for whole life? Call us at (800) 521-7873 and we’ll give you a quote over the phone. Or start with a free term life quote by clicking the button below!
Using Whole Life as an Asset
Is whole life an asset? Yes – and we’ve covered why. But what, exactly, can you do with it?
- Use it to pay your premiums. If you’ve banked enough cash value, you can use it to pay your policy’s premiums. Whole life’s level payment amounts make the math easy. You know exactly how much is due, and exactly how much cash value you have. If you set up these payments, your insurer will pull the required amount from your cash value. If your cash value is ever in danger of being used up, your insurer will notify you. However, it’s always a good idea to keep an eye on this yourself just to make sure your coverage doesn’t lapse.
- Hedge against more volatile elements of your overall financial portfolio. Your cash value is a solid, stable asset. Because you can access it and borrow against it (see below), it acts as a hedge for your overall financial portfolio. Since most clients’ portfolios are heavily invested in stocks and mutual funds, which obviously have a potential for loss, your stable cash value acts as a safety net should the stock market plunge.
- Borrow against cash value and become your own banker. You can borrow against your cash value by taking a loan out from your insurance company. This loan is private, so it will never appear on your credit record. You’ll pay a small amount of interest, but that will be offset by your continued cash value growth. Check out our post on how to use whole life insurance to create wealth for a complete overview of this financial strategy.
- Withdraw cash value to use for anything you want. You have multiple ways to access your cash value: (1) policy loans, as described in the bullet point above; (2) partial withdrawals, and (3) full withdrawals when you cancel (surrender) your policy. The method that makes the most sense for you will depend on your budget and needs. But obviously, we don’t want to see you cancel your policy and leave your loved ones with nothing for the death benefit. Policy loans and partial withdrawals can give you the cash you need while continuing to protect your family from financial insecurity.
Is whole life an asset? Yes! To get a quote, call us at (800) 521-7873 and we’ll give you a quote over the phone. Or start with a free term life quote by clicking the button below!
