Whole life insurance provides lifetime protection at a level cost for life or for a limited pay period that is paid up. Additionally it has a managed investment component. It can be in either a participating or non-participating plan. A participating plan essentially means dividends can be paid, although not guaranteed, to policy owners as part of a shared pool. Using very conservative assumptions, the premiums are based on mortality, investment return and expenses. Dividends are then paid back to the insured when these assumptions are exceeded creating a surplus of earnings held in the account. In addition, there is a guaranteed cash value that is built into the account.
The dividends can be paid as savings, used to purchase additional life insurance, including term insurance additions, or reduce premiums. This can be an excellent investment vehicle and an opportunity for savings growth, for many reasons including allowing for tax free growth and an opportunity for tax-preferred cash value growth. Creating a long-term cash value can provide access to cash during your lifetime, create a retirement income, or allow choice in premium-paying periods to meet the changing cash flow of your business. The conservative nature of the insurance investment is also reassuring especially in a volatile market. It is also a comfort to know that as a life plan that the amount will have a guaranteed death benefit to the beneficiaries tax-free. Furthermore, a selection of various riders and benefits may also be added to the basic policy.
As an investment consideration, the chart below demonstrates the comparative opportunities with insurance versus other traditional investments. A careful review of your individual plan will define the correct objective and direction one should take.
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