You work hard to build financial security for you and your family. This might include home ownership, retirement savings, investments and more. Whole life insurance can be an effective part of a well-diversified financial strategy. It’s another tool in the financial toolbox.
In insurance lingo, “whole life” is simply life insurance that’s designed for your whole lifetime.
But there’s much more to it than lifetime coverage. Let’s dig into the details to paint a clearer picture of how whole life works and who might benefit from it.
Whole life 101
While term insurance lasts for a predetermined number of years, whole life generally runs for as long as you live (assuming premiums are paid). It can work for you and your family while you are in your working years, when you retire, and last until your death or the maturity of the policy, whichever comes first. Here’s how.
- Guaranteed fixed premiums
- Tax-deferred cash value growth that can be borrowed against
- Dividends1 available on some plans that can be used in several different ways
First things first. How much does it cost? When you talk to your insurance professional, you’ll probably notice that whole life premiums are higher than those for term insurance. It’s important to see the full picture, however. The beauty of whole life is that it can spread out the cost of insurance if you choose to pay over your lifetime, or you may have the option to condense your payments into a shorter period (e.g., 10 or 20 years). Either way, premiums are usually guaranteed to stay the same. As a comparison, for those who live a long life, term insurance premiums can become expensive in the later years of life, , such as after the first 10 or 20 years of the policy. With whole life, premiums generally do not change.
Cash value growth
There is a tax-deferred2 cash value component to whole life insurance. Whole life insurance comes with guaranteed cash value that grows over time. The owner of the certificate can potentially access this cash value while still alive and use it for emergencies or to pay for expenses such as post-secondary education, home renovations or additional retirement income.3 While not recommended as a solution for families looking to meet short-term financial obligations, this cash growth can be included as part of a long-term financial plan.
The amount of cash value is based on a calculation that may take into account factors such as age, gender and smoking habits.
Participating whole life insurance, also known as “par” whole life, may generate dividends based on various factors. It’s important to remember that dividend payments on whole life insurance are not guaranteed. Many insurance plans allow the policy owner to take these dividend payments in the way that works best for their situation, including:
- Use to buy additional insurance (called a “paid-up addition”) to increase the overall death benefit protection as needs increase over time. This flexibility can help keep pace with a family’s needs as their lifestyle changes.
- Leave in the plan to earn interest and create cash value
- Apply to reduce future premiums
- Pay out in cash
Is whole life the right solution?
Your situation is unique. As with any other type of financial product, it’s important to speak with a qualified professional about your goals because there are varying options available to suit specific needs.
For families looking for a long-term solution with predictable premiums and the potential for savings, whole life insurance may be suitable for the following reasons:
- Guaranteed premiums can add stability during your working and retirement years
- Guaranteed cash value (and potential dividends on some plans) can help diversify your assets and may be a useful cash injection when needed
- The death benefit amount can help provide financial security for those you love after you’re gone
Learn more about whole life insurance solutions from Foresters.
1Dividends are not guaranteed and vary by factors including gender, band, smoker, preferred/standard, and premium pay period.
2Foresters, their employees and life insurance representatives, do not provide, on Foresters behalf, legal or tax advice. The information given here is merely a summary of our understanding of current laws and regulations. For questions around any tax or legal matter, individuals should consult their tax or legal advisors.
3Loans can be taken if the certificate is in effect and has a positive cash surrender value. Loans will reduce the death benefit and cash values and may affect how long the certificate is in force. Interest is charged daily at the contractual loan rates. Death benefit payable is net of the outstanding certificate loan amount(s) (including accrued interest). If the loan amount exceeds the cash value plus the present value of PUAs and dividends on deposit amount the certificate will terminate.
419705 CAN/US (03/21)