(800) 253-1482Whole Life Insurance in Texas
Summary: Unlike term life policies, a whole life insurance (full life insurance) policy will cover you for a lifetime. Beneficiaries can choose how they are paid their death benefit, but policies also offer the opportunity for policyholders to grow a cash value that can be borrowed from or withdrawn. There are several types of whole-life policies available and comparing them, along with carriers, is imperative to finding the right coverage for your needs. Estimated Read Time: 7 mins
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Enrolling in whole life insurance is a great way to provide peace of mind while you’re still here and financial compensation when you’re not. Additionally, you can build a cash value during the duration of the policy, making it a powerful financial tool for families.
What Is Whole Life Insurance?
Whole life insurance is also known as full life insurance, which covers insured persons by providing a death benefit to beneficiaries after their passing, so long as the policyholder keeps the premiums paid and current.
There are two notable differences you’ll find with a whole life policy compared to term life insurance:
- In addition to a death benefit, whole-life plans have the ability to generate a cash value accessible on a tax-free basis throughout the life of the policy.
- Rather than providing coverage for a set number of years, the policy pays once the insured party dies regardless of years.
This is the most common form of permanent life insurance but there are many different types available, along with riders, making whole life a great option for meeting a range of needs.
How Does Whole Life Insurance Work?
Whole life insurance companies pay a death benefit to beneficiaries after the insured passes away and also provides other benefits, such as cash values, when applicable.
The policyholder maintains a responsibility to pay premiums to ensure the plan maintains good standing.
Policyholders can build cash value by making payments exceeding the scheduled premium to buy additional coverage, called paid-up additions (PUA).
They can also reinvest policy dividends into the cash value, which earns interest.
Eventually, dividends and interest earned on the cash value can exceed the total premiums paid into the policy, providing a positive return.
Remember, if you want the full death benefit, loans, and withdrawals must be replaced with interest, otherwise, beneficiaries will receive a lower amount of compensation.
Unlike term life insurance policies, whole life coverage is for the entirety of your life. Therefore, when you go, a death benefit is paid whether its tomorrow or in 100 years.
Whole Life Insurance Cash Value
One of the most attractive benefits of whole life insurance is the cash value component that acts similarly to a retirement savings account.
Part of the premium goes towards investments, which can generate interest that defers taxes and can be borrowed from or withdrawn later.
If you look at a whole life insurance cash value chart, you’ll notice that they typically grow faster when the insured party is younger rather than later on in life.
This is because carriers require higher premiums as you age to account for the higher risks that come with accelerated ages and life insurance.
If you decide to borrow from or use the funds in your policy, your death benefit is reduced if the funds are not repaid with interest.
Furthermore, if you surrender your policy, you can receive the cash value minus fees but this forfeits the death benefit.
Whole Life Insurance Death Benefit
For any whole life insurance policy, a death benefit is paid to the beneficiaries according to the contract.
While you can change this amount depending on the whole policy life insurance policy you enroll with, it’s available after the insured dies based on the amount the policyholder and carrier agree to.
Beneficiaries that receive a death benefit don’t have to pay taxes on them, so the funds go directly to those that are designated to help with any number of expenses.
Alternatively, instead of a life insurance whole life policy, you can also add riders, when available, to guarantee coverage on policies.
Keep in mind this will cost more and riders that provide you with guaranteed coverage can still be affected by loans and withdrawals.
Some riders guarantee a death benefit if the insured is unable to cover premiums due to a disability or critical or terminal illness.
Policies can pay their death benefit in a number of ways, including lump-sum payments, installments, or annuities. The beneficiary receiving the death benefit typically chooses how they are paid.
Types of Whole Life Insurances
To determine the best whole life insurance for you, it’s always advised that you not only assess your needs but also your converge options.
There are many different types of policies available. Here are some popular options and how they can help your family:
- Adjustable Premium Term Life Insurance - Sometimes called flexible-premium adjustable life insurance or universal life insurance, policies allow you to adjust your premiums and coverage during their duration. You can still utilize the cash value component.
- Cash Value Life Insurance - Many different permanent life policies offer a cash value component. With these plans, you can earn interest, thus, generating cash value, that you can use as a loan to yourself. Borrowing is a tax-free withdrawal, however, if you don’t repay the loan, with interest, expect the death benefit to be lower.
- Guaranteed Life Insurance - Also known as guaranteed acceptance life insurance, these permanent policies don't require medical exams and are popular among older individuals and/or those with serious health conditions. You won't receive as large of coverage for the death benefit as you would with traditional policies, but for those who are having an issue being eligible for life insurance at all, these options are a viable solution.
- Level Payment Life Insurance - During the life of your policy, your premiums never change. Most people who choose a whole life insurance plan opt for this coverage.
- Limited Payment Life Insurance - Policyholders pay premiums but there are only a limited amount of payments that occur for a set number of years. Expect the cost of these premiums to be higher than level payment plans.
- Single Premium Life Insurance - Rather than paying multiple premiums, the policyholder only pays a one-time cost, however, there are tax considerations to keep in mind when purchasing this type of coverage. Modified endowment contracts are the most common examples of this coverage.
- Variable Life Insurance - You’ll note that many full life insurance policies have cash values but the interest rate is predetermined. A VLI policy provides policyholders with investments in stocks and bonds through sub-accounts. This also means there are associated risks that come with investments associated with such coverage.
Pros and Cons of Whole Life Insurance
While whole life insurance is a great option for many, there are many other options available. You’ll want to weigh your options to determine which coverage is right for you before signing up.
Conducting due diligence is key. Here are the pros and cons you’ll need to remember about a whole life plan:
|
Pros |
Cons |
|
Lifetime coverage until you die. |
Whole-life insurance policies cost more. |
|
Generates a cash value you can borrow from tax-free. |
While you generate a cash value, growth can be slow compared to other plans. |
|
Your death benefit stays the same so long as your policy is active. |
Although your premiums are stable, this means you can’t adjust them down the line. |
|
Premium costs are steady and predictable. |
You also have limitations on altering your death benefit. |
Get a Texas Whole Life Insurance Quote Online
Texans have plenty of options for their coverage and comparing rates is the best way to find the right protection at the lowest price.
Freedom Insurance Group partners with top-rated life insurance companies to help our clients better protect their finances on a personal level.
Get a free, no-obligation, whole life insurance quote online in just a few clicks to compare rates near you.
Is Whole Life Insurance a Good Investment?
Whole life insurance can be a good investment, depending on your needs, financial goals, and risk tolerance.
Before making any decisions, it's critical to speak with your licensed financial advisor.
With that being said, a whole life policy may be appealing if you:
- Desire to leave a guaranteed death benefit to beneficiaries, irrespective of when you pass away, without facing increasing premiums.
- Seek a stable investment option, as the cash value in whole life insurance grows steadily over time, unaffected by market fluctuations.
- Maximize contributions to retirement accounts annually; considering a whole life insurance policy can provide additional tax benefits as the cash value grows tax-deferred.
- Intend to access cash reserves in the future. Accumulating cash value allows for potential use in supplementing retirement funds or funding educational expenses. Remember, the cash value doesn’t contribute to the death benefit, which is the policy's face amount minus any previous withdrawals or outstanding loans
What Is Modified Whole Life Insurance?
Modified whole life insurance policies offer lower initial premiums for a specific period, followed by higher premiums later on.
These increased premiums can surpass those of fixed-rate whole-life policies.
If you are unable to afford the higher premiums later, your policy may lapse, leaving your beneficiaries financially vulnerable.
Opting for a modified whole-life policy doesn't ensure lower total premiums compared to standard policies.
Additionally, delayed cash accumulation may result in higher costs, particularly if you surrender your whole life insurance policy early.
