Whole Life Insurance to Help Build Wealth

Key Takeaway

Purchasing a whole life insurance policy is not just a way to help protect your family and loved ones–it can also be a way for you to potentially help build wealth that can be passed onto your beneficiaries, used to help finance a small business, or help cover unexpected bills.

Cash value building wealth image chart for whole life insurance

Whole Life Insurance Explained

Whole life insurance is a form of permanent life insurance. In other words, it is a life insurance policy that typically lasts for a lifetime. As long as you continue to pay the premiums (which remain fixed), the policy remains in place. Your beneficiaries on file with the insurance company are usually paid directly by the insurance company when you pass away, avoiding probate. Death benefits are usually not taxable and could be just what your beneficiaries need to help move their financial position to the next level. 

Term life policies, on the other hand, are typically in effect for a designated period (i.e., 10, 20, or 30 years). With enough life insurance solution information, and with guidance from a trusted financial advisor, you should be able to choose a policy that both meets your needs and your budget.

Passing On a Legacy

In addition to the length of time coverage stays in effect, whole life policies differ from term life policies in that they have a cash value component. A portion of each premium payment goes toward the cash value, which can help serve as a type of savings program. Generally, the amount allocated to the cash value portion is higher at the beginning of the policy and gets lower as the insured ages – because more of the premium goes to the cost of coverage.

The accumulated cash value does not usually fluctuate with the market but increases at a guaranteed rate. The interest income is tax-deferred and the policyholder can often borrow against the cash value, or withdraw cash to cover expenses from an unexpected life event or any other reason. The cash value can also be a stable asset in a financial portfolio, especially when the stock market is volatile.

By including whole life insurance as part of your overall estate planning, your beneficiaries can use the death benefit they receive when you pass away to help pay estate taxes, outstanding debts, and other obligations–and the next generation can potentially build wealth from the anything remaining in the payout after debt obligations are met. Keep in mind, though, that if you withdraw cash from your whole life policy, it will typically reduce the amount that would be paid to your beneficiaries when you pass away.

Example of Cash Accumulation

An article from Investopedia* demonstrates how cash value can be built with a whole life policy through a hypothetical example of a healthy young female who buys a $1 million policy with a monthly premium of $1,562 when she is 25.

If the premiums are paid as agreed, the cash value will be $750,000 when the policyholder turns 65. If the policyholder passes away at this age, the account value will cover three-quarters of the $1 million death benefit, and the insurance company pays the remaining $250,000.

This example is very simple, and for illustration purposes only. The actual numbers will vary significantly depending on the life insurance company, the type of policy purchased, and, in some cases, current interest rates. This example also shows a level death benefit, where the accumulated cash value does not add to the policy’s death benefit. Some companies offer an increasing death benefit, where any remaining cash value is added to the insured’s death benefit when they die.

Final Thoughts

Life is unpredictable, and there is never a wrong time to start thinking about how your loved ones will manage if you aren’t around. When used strategically, whole life insurance can help offer a means to build a lasting legacy. This kind of insurance is often an overlooked method for building wealth, but there are numerous ways in which whole life insurance policyholders may be able to leverage their policies to help their financial status.

To find out which type of policy might be best for you, we recommend that you speak with a trusted financial advisor. 

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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