Whole Life Insurance for Parents

Whole life is a type of life insurance policy that is intended to continue for the duration of the insured person's lifetime, unlike a term life insurance policy, which is valid for a set number of years or has a predefined expiration date.

Although the average whole life insurance policy cost per month may potentially be higher than other insurance policies, the benefit may be in having permanent coverage that lasts a lifetime, and knowing there would be a death benefit paid to your beneficiaries when you pass away, if the policy remains paid up. 

As with any decision, it is important to access life insurance education resources to help ensure you are confident your selected coverage meets your needs, and to be aware of the impacts of missed premiums or making withdrawals from a whole life policy.

Whole life insurance policies provide permanent coverage and normally have a set premium that will not change. When you purchase a life insurance policy, you will need to name a beneficiary who will receive the death benefit, with many parents opting to designate their child, a trustee, or another family member who can safeguard the amount until a child reaches a certain age. 

Provided you maintain your premium payments, your coverage will remain valid for lifetime of the insured, with many policies offering features such as cash value accumulation to help grow your policy value.

Benefits of Whole Life Insurance

Parents who are considering various life insurance policies may choose whole life since they will have the confidence that the policy will last a lifetime. While the cost of coverage is generally higher than a term life insurance policy, numerous factors will influence your premiums, including the death benefit you require, your age, and your health.

The advantages may include:

• Having a premium that will not increase with age
• Purchasing lifelong insurance coverage 
• Leaving a death benefit to a child or other loved one

You might be wondering, is life insurance a business expense for self-employed people? The IRS does not allow taxpayers to deduct life insurance premiums from their incomes. However, a whole life insurance policy will usually enable policyholders to accrue interest without a tax obligation, and a death benefit is not typically subject to taxation. 

Business owners may also consider offering life insurance as an employee benefit, in which case the cost of the premiums is typically an allowable business expense–but owners purchasing a policy for their own benefit may be excluded from doing so.

Many whole life insurance policies include a cash value; this feature is separate from the death benefit that is payable to the policyholder’s named beneficiary. Somewhat comparable to a savings component, the cash value may earn interest on a tax-advantaged basis.

Life insurance companies tend to offer a fixed interest rate to help build cash value of the policy, but this may also be variable or dependent on the amount contributed towards the policy. Whole life insurance policyholders may be able to increase their payments above the normal premium up to a certain threshold or purchase dividends, which they can deposit into their cash value to help increase growth potential.

As the policy matures, the cash value will normally grow, and policyholders can usually make withdrawals or take loans against the cash value, provided there is enough remaining value to keep the policy in force. However, it’s important to understand that taking a loan against or withdrawing from the cash value in a whole life insurance policy will reduce the overall cash value and possibly the death benefit in some cases.

There is also the possibility of incurring a tax liability if withdrawals taken from the cash value exceed the premiums paid.