The uncertainty of life is a reality everyone has to accept because anything may be around the corner. You always expect things to get better, but unexpected events like an accident, disease, death, or a financial crisis may strike out of the blue. Getting coverage for such disasters gives you peace of mind, making insurance a wise investment.
Statistics show that 52% of American adults own life insurance of some kind. The concern is that almost half the population doesn’t have coverage. Even those having it may opt for the wrong product. Financial literacy is the key to buying adequate and relevant coverage. With several insurance options in the market, knowing them well also enables you to choose wisely and confidently.
Whole life insurance is a popular option, with statistics showing that 36% of new life insurance policies sold in 2021 were whole-life. Indexed universal life (24%) was a close second and term life (21%) was third on the list. While whole-life policies are suitable for all age groups, they work particularly well for people approaching retirement or planning for it.
Here are a few facts to be aware of before considering whole life insurance for your financial portfolio.
Understanding Whole Life Insurance
Before considering the viability of a whole-life policy for your retirement plan, you should dig deep to understand what it is about. With whole life insurance, you get permanent coverage that grows in cash value over time. The insurer invests a portion of your premium to give a cash value to your policy. The value grows at a fixed rate assured by your insurer.
Since the policy is tax-deferred, you need not pay taxes on any interest you earn as long as you retain the funds in the policy. You can even borrow against your policy once it accumulates enough cash value. 1891 Financial Life recommends this option for gaining lifetime protection in exchange for a certain number of premium payments.
Benefits of Whole Life Insurance for Retirement Planning
Now that you understand what whole life insurance is all about, you can comprehend its benefits for your retirement planning. Here are a few good reasons to consider this option:
Permanent Life Insurance Benefits
With term life insurance policies, coverage only lasts for a specific policy term. Most of them last from 10 years to 30 years. It means you need to buy fresh coverage as you age. The last thing you want is to spend big money on insurance when nearing retirement.
A whole life policy stays in force as long as you live and even ensures full death benefit for your dependents. All you have to do is keep the policy in effect and pay premiums on time to leave a legacy for your loved ones.
Premiums Stay the Same
The average life insurance cost for a 20-year, $250,000 term policy for a male or female age 30 is $13 a month ($159 a year). The cost increases as you age, and may become painfully high when you are close to retirement. Imagine paying long insurance bills at an age when you want to take a break.
Unlike term life insurance, the monthly premium of a whole life insurance policy does not go up once you buy it. Since the policy lasts for a lifetime, you don’t have to stress about buying an expensive one. Also, you get the best rates at the time of taking it out because you are younger and healthier.
Build Guaranteed Cash Value
Retirement planning is about wise financial decisions that secure your future during the golden years. With each premium payment, you get the assurance of building guaranteed cash value. A part of the premium goes for the insurance and administrative costs, and the remaining is invested in building tax-deferred cash value.
The cash value of your policy grows over the years and reaches a point where you can take out a loan against it. That gives you peace of mind about taking care of financial emergencies such as a sudden health crisis after retirement. You can rely on the policy even when you don’t have other financial resources or regular income.
A Final Word
Financial experts consider whole life an ideal investment if you want stable and predictable long-term returns after retirement. The best part is that whole life insurance is a tax-advantaged vehicle with a low-risk profile. You hardly need to stress about hefty tax bills or losses due to market volatility. It is the best solution to secure your golden years and provide for your loved ones after you are no longer around.