It’s more than a little unusual to think about death, but if you were to pass away today would your spouse, children an loved ones be financially secured?
Some people avoid the subject of death so strongly, that they neglect to prepare for a “what if” situation.
What if you were to die? Could your family keep their home?
Would your loved ones become burdened with bills they couldn’t pay?
Preparing for these situations is an important component of complete financial security.
Planning for death is taking a step towards a more secure future.
Once you’ve decided to begin the life insurance conversation, you have a few decisions to make.
What type of life insurance coverage do I buy? Do I purchase a whole life insurance policy or a term life insurance policy?
If I go with a term life insurance policy how long of a term length should I get? 10, 15 20 or 30 years?
Or should you choose a dividend paying whole life insurance or a non-participating whole life insurance policy?
Below, we help you break down the differences and choose the policy that’s right for you.
Term Life Insurance
Term life insurance is one of the most popular types of life policies. This is because it’s also one of the most cost effective.
Your insurance premium (the amount you pay for your policy) is a fixed rate. This means it will never fluctuate.
You’ll know exactly what to pay each month and can budget for the expense.
If you take out a term life policy through your employer, you may have even more options. Some employers allow you to have the premium taken out of your paycheck.
This stability makes term policies attractive for younger people. They’re also helpful for those with a limited income.
However, you should be aware that term policies only last for a predetermined amount of time, or “term.”
Policies come in various allotments of time, generally ranging from 5, 10, 15, 20 or 30 years. When this period is up, the guaranteed rate terminates.
For this reason, term life insurance is sometimes referred to as “temporary insurance.”
After your policy term policy terminates, you can choose to renew it.
Often, your premium may increase or fluctuate upon renewal. This is because term life policies base premiums on your health and age.
The older you become, the higher your risk of death.
The insurance company takes on that risk, and so your premium rises.
There’s no time like the present to begin shopping for new life insurance.
Whole Life Insurance
As the name implies, whole life coverage stays in effect for your entire lifespan.
This type of policy is costlier per month than the average term life insurance policy.
That price comes with a benefit. These policies stay one steady price throughout their entire duration.
Unlike a term policy, your whole life insurance policy will never expire or fluctuate. The premium doesn’t increase as you age or as your health declines.
Whole life policies are also the best kind of piggy bank or forced savings account.
They come with the great benefit of being tax-free. Any interest you make on your initial premium is not subject to taxes.
You can even borrow against the cash value of your policy.
You never know when you’re going to need a loan.
While paying for a life insurance policy, you’ll also be saving. Whether it’s for a new car, home, or a child’s education, you’ll have been saving all along.
You can also withdraw the cash value of your policy, either in part or in full.
Upon withdrawal, you will have to pay taxes on the sum. Still, it’s a valuable backup to have in case of an extreme emergency.
Whole life policies are also not subject to collection by creditors in many states across the US.
This makes them a great safety net in case you go into debt in the future.
Similarly, some states protect the cash value of your policy even if you file for bankruptcy.
Is a Whole Life or Term Life Policy Right For You?
Can you afford the upfront cost? If so, whole life insurance affords you more options and flexibility.
The policies let you access and use your money in ways that you can’t with term life insurance.
If you find these policies too cost prohibitive then it’s in your best interest to have a term life policy.
At the very least, you’ll have protection for the duration of the policy. You can always add a rider or roll your policy over into a term life policy when your finances become more flexible.
Whole life insurance policies come with another benefit: they’re the type of policy that pays dividends.
Let’s delve into the inner workings of dividend paying whole life insurance.
Dividend Paying Whole Life Insurance
Dividend paying whole life insurance policies are sometimes referred to as a “with-profits policy.”
Dividends are a small part of a company’s overall profits that it pays to its shareholders.
They are usually paid on a quarterly basis, though some are paid yearly.
With a dividend paying whole life insurance policy, the company buys stock, investing your premium.
If the insurance company does well in the stock market, it will pay you dividends on the premium. Yet, if the insurance company does poorly, you are not affected and dividends will not be paid out.
These policies carry a very low margin of risk as you can never lose your capital.
This is because established companies know how to manage their portfolios. They have a vested interest in turning a profit.
This makes them a more secure source of dividend paying because these corporations are longstanding.
The fact that they’re more established means that they’re more reliable.
This is the primary benefit of a dividend paying life insurance policy.
You should be aware that dividends aren’t guaranteed and, generally, they’re paid out by larger corporations.
If you’re eligible for these types of policies, it’s in your best interest to take them.
What Can I Do With Dividends?
Most insurance companies will give you three options for your dividend paying policy:
- Apply the dividends toward your current policy premium to reduce your out-of-pocket cost.
- Take the cash value of the dividends.
- Reinvest the dividends.
The wisest course of action is to reinvest the dividends.
A Dividend Reinvestment Plan, or DRIP, can reinvest your dividends for you.
This ensures you’ll never forget to reinvest or make excuses to put it off.
Remember, every moment your money isn’t reinvested, it isn’t accruing any interest.
If your money isn’t reinvested, it isn’t working for you.
Choosing to reinvest will allow you to gain more wealth than through a typical bank account. This is because interest rates on traditional bank accounts remain low.
How Non-Participating Life Insurance Differs
Non-Participating life insurance policies do not pay dividends.
Knowing this, you may be wondering why people would choose a non-participating policy.
The answer is simple.
A non participating whole life insurance policy will still offer:
- Permanent Life Insurance Coverage
- Guaranteed Scheduled Cash Values
- Cheaper than Dividend Paying Whole Life Insurance
Making Your Decision
Okay, so you know you want a life insurance policy. Now you need to decide if it’ll be a term life insurance policy, a non-participating whole life insurance policy, or a dividend paying whole life insurance policy.
The good news is that we can make you decision a bit more easier as we represent several of top whole life insurance companies as well as term life insurance companies.
It helps to think about your financial future.
Do you plan to make any big future purchases such as a car or home?
If you are, you should consider a dividend paying policy. You can borrow against it for your mortgage or lease.
You could also rely on the funds accrued from your policy to help with the cost of your new purchase.
Lastly, the potential cash value earnings from a dividend paying whole life insurance policy can be used as an additional source of income come retirement.
Can you afford a whole life policy?
If the cost of a whole life policy is too steep, then you may not be eligible for a policy that pays dividends.
In that case, it’s best to take a term policy so that you have some form of coverage.
Whole life insurance is best when purchased in you are younger.
TIP: If you have young children or grandkids, consider buying a whole life insurance policy for them now as the cash values will be much greater in their adult years. Also, the policy will be much more affordable now than later.
3 Ways to Get a Dividend Paying Whole Life Insurance Policy
Have you decided that a dividend paying whole life insurance policy is for you? Here are a few different ways to go about getting one:
- Start A New Policy. If you don’t yet have life insurance, give us a call or send us a message. Together, you can come up with a life insurance plan that’s custom fit to you.
- Roll It Over. If you do already have life insurance with some cash values earnings, you can request to roll your policy over. This request may not take effect until your renewal date, so make sure to ask when it’ll begin and when you’ll receive your first payout of dividends.
- Add a Rider. Insurance riders are additional changes added to a traditional life insurance policy. Insurance riders are as unique as you are.They can be added to include your children under your life insurance coverage, or to cover your family in case of accidental death.Ask us about your options.
Need Help Choosing?
Remember: in the end, any life insurance policy is better than no life insurance policy.
It’s a safety net that can let you and your family breathe easy.
You’ll know that your loved ones won’t be in a poor financial situation during an emotionally trying time.
That kind of protection is priceless.
Call us toll-free at 888-777-7574 or send us a message below to start selecting the coverage your loved ones deserve.