Whole Life

older couple

I want to own my insurance.

Whole Life insurance is exactly that. The policy covers you for the whole of your life. Where term insurance is like renting an apartment, Whole Life is like buying a house. Because you own it, if you ever decide you don’t want it, you can basically sell it back to the insurance company. This is called the Cash Surrender Value. Obviously, the older you get, the higher the Cash Surrender Value becomes. With Whole Life policies, the insurance company knows that at some point they are going to have to write a cheque. As your “big day” approaches, the amount of money the insurance company is willing to pay to get out of writing the even bigger cheque at claim time increases.

Ironically as we age and move into retirement the need for life insurance declines. The mortgage is paid off; the kids have finally moved out, you no longer have to get up every morning and go to work for a pay check. You’re in pension mode; maybe you should sell some of that insurance to finance retirement??

At this point Life insurance is less about insurance and more about the investment. Life insurance is valued based on someone’s age. Therefore, it is reasonable to assume that as you age, the value of the insurance increases. The old investment adage of “buy low, sell high” has never been more true. This is where owning a Whole Life policy literally pays off. Insurance that was purchased at a lower cost for a younger person to cover debts and dependent children is now valued much higher as an older person. A retired person who no-longer requires the death benefit can now surrender their insurance and take advantage of the “buy low, sell high” concept and create a pension for themselves.

How stable is that type of investment?

Nothing in life is guaranteed except death and taxes. However, because whole life policies are valued based on the first guarantee (death), the “rate of return” is quite stable. Most policies offer a Guaranteed Cash Surrender Value written into the policy. Unless, someone invents time travel or discovers the fountain of youth; permanent insurance policies will always increase in value with age.

Are there any non-guaranteed values?

Yes, many whole life policies are “participating”. This means that a dividend is declared to all policy holders by the insurance company. The dividend can be taken as cash, used to offset premiums, or used to purchase more insurance. Although the dividend is not guaranteed, once it is paid out, the company can’t ask for it back.

What is the track record for companies paying this dividend?

Most companies have always paid a dividend without fail for years. Two of the biggest providers of Whole Life policies have paid a dividend to their policy holders without fail, every year, for well over 100 years! It’s an impressive track record.

How much do policies cost?

The easy answer is it depends on the policy. Age, gender, and amount of coverage all factor into it, but just like buying instead of renting; it costs more to own, but you are building equity.

When I buy a house I have a choice of mortgage payment plans. Is buying insurance the same?

Yes, payment plans can be set for a period of years, just like a mortgage. You can also pay monthly or yearly.

More questions?  Just ask.

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