Top Uses for Whole Life Insurance
When it comes to the value of Whole Life Insurance, there as many financial advisors in favor of it as there are not in favor of it. This insurance product has been around since Moby Dick was a minnow and nothing all bad could possibly survive that long.
It’s interesting that this type of insurance is primarily purchased by the very rich and the very poor. The very rich typically purchase Whole Life for some financial advantages that we will discuss later and the poor buy it as a “final expense” solution that they can purchase in small amounts and designate for funeral and burial costs. Although many financial advisors are against Whole Life Insurance, there are some excellent advantages:
Tax Advantages
When you invest money in an IRA or 401k, you are deferring taxes to a later date when you begin to withdraw it for retirement. Since your Whole Life premiums are paid with after tax dollars, the cash value builds without tax liability unless you withdraw more than what you paid into it. You can actually withdraw gains earned on premium by taking a loan from the policy value.
Dividends
Mutual Life insurance companies typically pay dividends on the Whole Life policy. It’s important to note that dividends are not taxable because they are considered return of premium. For example, at the end of the policy year your insurance company pays $500 in dividends on your policy; that money is not taxable because it is a partial return of premium paid in with after tax dollars. The insured could then reinvest that money using it to buy paid-up additional insurance.
Tax Free Income
An insured can in a legal manner withdraw tax free income from the cash value of their Whole Life policy. They are able to borrow against the policy value on a tax free basis.
Although you will pay interest on the loan, it is typically substantially lower than what you’d pay in taxes and more importantly, you do not have to be older than 591/2.
Always consult a licensed and reputable insurance professional along with your online research as part of the due diligence before making such an important purchase.