Whole Life Insurance

Whole Life Insurance is a traditional insurance product that has existed for more than 150 years. It may be that your grandparents, or even great-grandparents, have used whole life insurance.

This type of insurance is ideal for emergencies, opportunity, and legacy: in large part due to its permanence and cash value account. In this instance, permanent means that you cannot outlive your death benefit.

Since the death is a guaranteed event, permanent insurance is designed to be used exactly the way it is set up and builds a cash value in the event you ever needed to borrow against it.

Whole Life Insurance Policies provide both a death benefit and cash value

Death Benefit: A lump sum of money paid to beneficiaries when the policyholder dies, regardless of how long the policyholder lived, is tax-free.

Cash Value: A savings component that grows over time at a guaranteed interest rate. The cash value can be used for emergencies, retirement, or paying for college. Some carriers pay both cash value and death benefit combined when the policyholder dies.

Long-term care riders: If assistance is needed to accomplish the tasks of daily living, this rider will cover the costs of long-term care.

Waiver of premium: If you become disabled before age 65, the company will pay your premiums.

Accelerated DB rider: Offers protection in the event of a health crisis. Terminal or critical diagnoses will trigger a portion of the death benefit to be paid. There are no stipulations as to how that money must be used.

Paid-up Additions riders: Allows cash value to be built up faster, as well as increasing the death benefit, through “paid up” additional insurance. This is one of our favourite riders.

Additional guarantees

  • The cash value will not decrease

  • A level premium—once you’ve locked in a premium on a particular policy, it won’t increase.

  • Participation in profits—although profits are not guaranteed, you are guaranteed to participate in the profits via dividends.

  • Dividends are declared at the beginning of the year. In 2020, most companies have paid dividends in the 5-6% range. These figures are before costs and include policy guarantees. They are Gross rates.

  • Dividends can also be paid in different ways. This includes taking dividends in cash, using them to offset premiums, or purchasing paid-up additions. The latter option is the most efficient way to reinvest dividends.

Policy riders incur an additional cost, although often minimal. The peace of mind they can provide is priceless.

Whole life insurance is a must when building your financial foundation, because it grows safely and steadily no matter the economic circumstance, and often does so more effectively than banks. Whole life insurance provides certainty, and you should seek certainty wherever possible, so that uncertainty can be navigated.

A whole life is not an investment. Instead, it’s an asset that protects all other assets. And because it’s not correlated to the market, whole life insurance performs well no matter the state of the economy. In times of hardship, your cash value can be used to save a home, save a business, or prevent further losses in the rest of your portfolio. When times are good, your cash value can provide you with even better opportunities—allowing you to take advantage of whatever comes your way. 

This is another way of understanding the cash value. Like owning a home, owning a whole life insurance policy puts you in a position of control. Over time, “equity” builds up that you can borrow against. And the longer you own it, the more that cash value continues to build, risk-free. Average cash value growth of 2-5% per year.

What’s more, is that much like owning a home, a policy is something that can be used for legacy planning, collateral, or income creation (through dividends or conversion into an annuity).

To recap guarantees we’ve covered: a death benefit will be paid, no matter how long you live, so long as the policy stays in force.