What is Whole Life Insurance?

November 15, 2022 |read icon 5 min read
A financial professional explains the benefits of whole life insurance with her client while reviewing the client’s paperwork in a conference room.

What is Whole Life Insurance?

While we can’t always protect our family from tragedy, we can take steps to ease the burden created when a death occurs. Some of the most common reasons families purchase life insurance are to:

  • Help replace lost wages or income.
  • Cover burial and other final expenses.
  • Help pay off the mortgage and other home expenses.
  • Leave an inheritance.
  • Provide funds for a college education.

A whole life insurance policy provides permanent, lifetime protection for your loved ones. But what is whole life insurance? It’s life insurance coverage that lasts as long as you live and offers guarantees* not found in some other types of insurance. Whole life also has a cash value component. Continue reading to learn more.

Benefits of whole life insurance

Life insurance may be one of the most important purchases you’ll ever make. Understanding what whole life insurance is can help you determine if it’s the right fit you and your family. It can provide the resources the people you care about will need to handle the financial challenges your death would bring. The benefits of whole life insurance are the guarantees not offered in every type of insurance.

  • A guaranteed level premium: The amount that you pay for your policy is guaranteed never to change. You know how much and how long you’ll pay to provide protection for those you care about.
  • A guaranteed death benefit: The amount paid to your beneficiaries when you die is guaranteed never to decrease. It can help your family avoid making major changes, like selling the family home or business, or changing their lifestyle if you die prematurely.
  • A guaranteed cash value: The savings component within your policy that you may be able to access while you’re still alive, is guaranteed to grow at a certain rate.

Another benefit of whole life insurance purchased from a mutual-based organization, like Ameritas, is that you will be eligible to receive dividends if declared. You can use your dividends to build cash value, to increase the policy’s death benefit or to reduce the number or amount of premiums you pay.

Additionally, when your policy’s death benefit is paid to your beneficiaries, they typically won’t owe income taxes on the money they receive. This valuable tax advantage is only available on life insurance. With some assets, your loved ones could be fully taxed at their income tax rate when the assets are transferred to them, significantly decreasing the value that they receive.

Is whole life insurance a good fit?

A whole life policy also provides other benefits to help you reach your financial goals.

Living benefits

There are many unexpected events besides death that, if not properly prepared for, could cripple a family’s finances in a hurry. An accelerated death benefit rider can help ease the financial strain of a serious medical condition by providing a portion of your policy’s death benefit while you are living.

Cash value life insurance

A whole life policy, through premiums and dividends, can build guaranteed, tax-deferred cash value over time to help you be ready for life’s challenges and opportunities. You can access the funds within your policy when you want for any reason.

Still wondering if whole life insurance is a good investment? Cash value life insurance grows tax deferred. You will only owe tax on the gain in your policy if you surrender it and take out your money. This can help you accumulate even more cash over the long term. You can always take the amount you paid in premiums tax-free.

The most common way to access the cash value of your policy is through loans. Loans don’t require lender approval and have no effect on your credit report. The money you receive from a policy loan will not be subject to income tax if the policy remains in force and meets certain IRS requirements. The tax treatment of cash value loans is a powerful option to have at retirement, especially when you compare it to what might be lost to taxes on other retirement savings.

Loans will reduce the policy’s death benefit and available cash value. Excessive loans may cause the policy to lapse. Unpaid loans are treated as a distribution for tax purposes and may result in taxable income.

Ameritas can help

Hopefully this article answered the question, “What is whole life insurance?” A whole life policy from Ameritas also provides other features to help you reach your financial goals. Find a financial professional to help you learn more about whole life insurance and how it fits in your financial strategy.

*Guarantees are based on the claims paying ability of the issuing company.

Loans and withdrawals will reduce the policy’s death benefit and available cash value. Excessive loans or withdrawals may cause the policy to lapse. Unpaid loans are treated as a distribution for tax purposes and may result in taxable income.

In approved states, life insurance is issued by Ameritas Life Insurance Corp. In New York, life insurance is issued by Ameritas Life Insurance Corp. of New York. Policy and riders may vary and may not be available in all states. Optional features and riders may have limitations, restrictions, and additional charges.

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