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6 Reasons People Like Whole Life Insurance - Part A

7/5/2015

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Q. There are many life insurance products, why should I consider whole life?

A.  Whole life insurance has seen a resurgence in popularity because unlike term insurance, it is a permanent life insurance product. And unlike variations of universal life products, it is not subject to interest rate and market fluctuations.  Below are 6 specific reasons people like whole life products:

1. Higher return with lower risk 
Given current low interests, whole life insurance’s cash value growth is viewed as a higher-yielding financial product with similar risk profiles. Yes, it is still life insurance, but the cash value element is often thought of as a bond or CD alternative. 

Insurance carriers guarantee an interest rate in cash values. Mutual companies also often provide an annual dividend (not guaranteed, though). The dividend further increases cash values, all of which grows tax-deferred and can potentially be accessed income tax-free through withdrawals to basis and loans thereafter.


2. Build a healthy investment portfolio
Whole life insurance is a non-correlated asset class in a healthy, diversified investment portfolio. For entrepreneurs and more aggressive investors, whole life insurance serves as a counter-balancing force against concentrated positions and aggressive investments.

3. Permanent protection
The average mortality rate has increased dramatically in recent times due to advances in medical technology, greater access to healthcare, and greater awareness of wellness. As a result, families often realize that there is no standard or finite period to maintain life insurance. 

Other products and designs may not be able to guarantee death benefit coverage through advanced ages without:
  • increasing premiums on existing coverage;
  • adding to underwriting to get new coverage; and
  • reducing coverage on existing policies to maintain the policy and/or premium. 
The above shortcomings have led to a renewed awareness of whole life insurance. By design, the death benefit is guaranteed if the premium is paid, thus ensuring the policy will be there when protection is needed. Premiums have been amortized over the expected life of the product so as not to place sticker shock on those who are no longer actively employed but still want and need coverage.

We will discuss the next 3 reasons why people like whole life insurance in next blog post.
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