A whole life insurance policy is a form of permanent life insurance that covers the policyholder for their lifetime. In addition to a guaranteed death benefit payout, the policy also accrues cash value with a guaranteed rate of return. The cash value that accrues in a whole life insurance policy can be used during your lifetime to cover any number of expenses.
Here are five instances where whole life insurance can come in handy.
1) When You Need a Low-Interest Loan
You can borrow against the cash value in your whole life insurance account for virtually any purpose. For example, say you’re doing a minor home renovation but need a few grand to get the project over the line. You could borrow that money from your whole life insurance policy, then pay back the loan plus interest.
The process of a whole life loan may happen more quickly and at a lower cost than taking out a personal loan through a traditional lender. If you think you may use your whole life policy for a loan in the future, compare life insurance quotes to be sure the policy you get has a reasonable interest rate and low fees.
2) Pay for a Child’s College Expenses
The savings in a whole life insurance policy are yours to use during your lifetime should you choose to do so. And many parents see the value in using these savings to fund a child’s college, particularly if the main cost you were looking to cover with a death benefit is your child’s education.
Plus, whole life insurance cash value may not need to be reported on financial aid forms, meaning it likely won’t hurt your children’s chances of receiving aid.
3) Supplement Retirement Income
While the cash value in a whole life insurance policy likely won’t be enough to fully support your retirement needs, it can be used as a supplemental source of income. The money you paid as premiums can be removed tax-free, but investment gains and dividends are only tax-deferred until withdrawal.
It’s worth noting that any money you remove from the policy may impact the death benefit payout. That means it’s important to discuss removing any money from your life insurance policy with an agent before you make a decision.
4) Cover Premiums if You’re in a Tight Spot Financially
The cash value in a whole life insurance policy may be sufficient to cover premium payments during a time of low income. That means if you’re between jobs or going through a life transition with less pay, your life insurance company can help you leverage the policy’s cash value to keep premiums up-to-date. The result is that you won’t need to sacrifice the policy’s benefits.
The Bottom Line
The cash value accrued in a whole life insurance policy can be used for various purposes. While you’re alive, the cash value in your whole life policy can come in handy to cover premiums, pay for a child’s college, take out a low-interest loan, or supplement retirement income, adding a layer of flexibility to the guaranteed death benefit that comes with permanent life insurance. Whatever option you choose, be sure the money you put into a whole life insurance policy is working toward your greater financial goals.