4 Reasons Why Whole Life Insurance Policies Aren’t Just for Old Folks Whole life insurance rates.
Perhaps you just graduated college or maybe you’re 5 years into your career and things are beginning to look up. You’re even socking away a few bucks in your IRA or 401K each year. Why in the world would you even consider buying a whole life insurance policy when you’re still so young? Besides, retirement is decades away and you have plenty of time to save in your 30’s or 40’s and to protect your spouse or kids.
Well, before you say “no” to the next life insurance salesman, take a look at the 4 reasons why a whole life policy might be one of the BEST investments you ever make.
1. The policy is designed to save money tax deferred. That means you’re not paying taxes every year while the money is growing in the policy. Let’s say you’re 24 and you buy a policy with $100,000 of death benefit and keep that policy for the next 33 years. Chances are the cash value that builds up in your policy could be equivalent to earning 6% annual interest, not to mention your death benefit could more than double in size to approximately $240,000 (I know, bummer, you don’t actually get to SPEND that!). To truly maximize your plan, you can direct any dividends the policy might pay to get re-invested into the policy as this could both increase your death benefit and increase your cash value at an accelerated rate (similar to the effect of compound interest). Sure, you can also invest in the stock market but after taxes, trading fees and the occasional worry that comes when the market takes a dip, earning a consistent 5% or 6% is not too shabby.
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2. Protecting your insurability. Buying a life insurance policy when you’re healthy always assures you of being offered the lowest possible premium (cost of insurance). Also, the younger you are the cheaper it will be and considering the annual premium stays level for the life of the policy, you could save thousands of dollars…soo why wait? Every year you wait to purchase a whole life policy, your insurance premium goes up and if something unexpected happens you might be considered uninsurable and not be able to obtain an attractive policy.
3. A great way to save money without thinking about it. For many, putting aside money on a regular basis is challenging. There is always something better we could do with the money, rather than save it for our future. But that’s the beauty of owning a whole life insurance policy. It forces you to save. Without owning a policy, it’s so easy to skip a week, month or even a few years without saving anything. Keeping your policy in force each year, is knowing you’re growing your money tax deferred, protecting your insurability and if you have loved ones, providing them peace of mind as the beneficiary of your policy.
4. Borrowing against the policy. Most policies allow you to borrow money from your cash value at a fixed rate of interest. Typically, it may take several years of premium payments before your cash value is a useful source of funds. Even though you’re being charged interest, with many policies, the dividends may continue to be paid out each year and negate much of the interest you were being charged on that loan. The net effect is that you pay a very small amount of interest and have use of the money now. So, if you find yourself in need of cash for a down payment on a home, or for your kids college or for an emergency, borrowing from your life insurance policy is quick and easy.
Before deciding on how much life insurance to carry, you’ll want to sit down with a life insurance professional. Mutual life insurance companies pay dividends to the policyholder so this type will probably be your best option.
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