Life Insurance

Diversifying Your Whole Life Policy Holdings

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A whole life insurance policy can act as more than a safeguard for your family in the event you pass away. Whole life insurance can also help to diversify your retirement strategy, working alongside your investments. Here, we'll cover the basics of how whole life insurance works with your investments to build wealth for your family.

Note that while Ethos whole life policies do build value, because they are available to people ages 66-85, they won't have as much time to accrue cash value as policies purchased earlier in life. For younger people, deciding between the value of a whole life policy and a term life policy (like those that Ethos offers) is an important part of your life insurance research and decisions.

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Whole life insurance as an investment in your family's security

A whole life insurance policy provides a death benefit and coverage from when you begin the policy until the time you pass away. However, the premiums you pay into the policy can also grow additional cash value, allowing you life insurance to act like an investment. 

Whole life insurance policies may offer a guaranteed growth rate with a schedule that increases cash accumulation the longer you own the policy. As the policy owner, you can either leave the accumulated cash value in the policy for a more significant death benefit upon your death or pull money out of the policy once it's earned enough value. You may also be able to borrow against the policy. 

Whole vs. term life insurance

One of the differences between whole vs. term life insurance is that (provided you're up to date on premiums in a whole life policy) the term never runs out, as it does in a term life policy. 

Plus, the longer your own the policy, the more cash value accrues, which could increase the guaranteed minimum death benefit. Your investment in life insurance premiums is typically higher in whole life than term life. 

If the premiums fit your budget, whole life still has a set premium, a guaranteed death benefit, and the potential for accrued cash value. 

The pros of whole life insurance as an investment

  • If you're looking to create a robust investment portfolio, diversifying investments with whole life insurance offers an avenue to do so, but experts say this doesn't fit every investment scenario. 
  • If you've already maxed out your other retirement options, such as a 401 (k) plan, IRA, or Roth IRA, a whole life insurance policy offers another outlet for your investment funds. 
  • Using whole life guarantees a death benefit no matter when you die, unlike a term policy that runs out at a predetermined time. This allows you to plan on using the death benefit for such things as funding a trust for your children or buying out a business interest. 
  • With estate tax rules changing, some states have lower tax thresholds. High-net-worth individuals can use a whole life insurance policy to help their beneficiaries pay estate taxes. 
  • The tax-deferred nature of a whole life insurance policy means you don't pay taxes on the accrued value unless you pull it out for use. If you take out a loan from the policy, you don't pay taxes on it; it gets borrowed against the death benefit, meaning a whole life insurance policy can offer tax advantages. 
  • Creditors typically can't touch your life insurance benefits, which helps your beneficiaries. In cases where your estate must pay debts or risk losing a home, a life insurance policy can provide the cash to cover the debts and allow your beneficiary to retain ownership of the house. If your life insurance policy is enough to cover all debt and outstanding mortgage, your family won't have to worry about creditors calling or managing a monthly mortgage payment.

Reasons you may not want to diversify investments with whole life insurance:

  1. Suppose you're looking at whole life insurance simply as a life insurance vehicle. In that case, you may find more affordable life insurance rates with a more significant death benefit by exploring term life insurance.
  2. It can take a decade or longer to gain benefits of cash accrual in a whole life insurance policy. 
  3. If you still have the option to fund a 401 (k) plan, an IRA, or a Roth IRA, you can do so without the additional fee of investing in a whole life insurance premium. 

Using money from a whole life policy

Borrowing against both the death benefit and the cash accrued in a whole life policy offers ways to help you pay for items at any point along your life journey, whether a new home or a child's education. Keep in mind, if you borrow against the death benefit and don't repay it before you pass away, the death benefit will decrease by the amount you've borrowed, plus interest. 

Get a quote for life insurance online from Ethos Life today: Check your price on our convenient calculator to see what life insurance options fit you best. No medical exam is necessary; you simply need to answer a few questions.

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