Term life insurance policies can sometimes be more affordable for an individual than a whole life insurance policy. How do you know if whole life insurance is worth it?
For some people and in some certain situations, whole life insurance can be a worthwhile option. Let’s look at some examples of when someone might choose whole life insurance over a term life insurance policy.
8 Situations when whole life insurance can be worthwhile
If some of the following situations apply to your life and financial resources, you may want to consider purchasing a whole life insurance policy.
- You want to diversify your portfolio for added protection
Unlike term life insurance, whole life insurance policies can include various cash accumulation options. Whole life insurance itself is not an investment, but the potential interest on the cash accumulation portions of a whole life insurance policy can help add some diversity to your savings.
- You’d like to keep a cash reserve
Another way whole life insurance distinguishes itself from a term life insurance policy is that whole life insurance can accumulate a cash value that can be borrowed against much like a loan. The cash reserve can come in handy to help cover unexpected costs like major home repairs or medical bills when money may be needed in a pinch.
Unlike a bank loan, you don’t have to repay the money you withdraw from a whole life insurance cash value. Any unpaid debts on your policy are typically subtracted from your death benefits.
- You want to leave behind an inheritance
Another difference between term and whole life insurance is that a whole life policy provides permanent coverage with no expiration date as long as required premiums are paid as scheduled. If you want to leave behind an inheritance to a loved one or make a donation in your memory to a charity or organization, a whole life insurance policy can help ensure that happens. Some people with term life insurance outlive the length of their policies, thereby nullifying any potential inheritances they wanted to leave behind through a life insurance policy payout.
- You have a dependent who will need lifelong assistance
What if you have dependents who will need financial assistance for the rest of their lives? A spouse or a child with a disability may never become fully financially independent, and a term policy could expire before your loved one has established some financial security.
With its permanent coverage and guaranteed death benefits, a whole life insurance policy can help make sure your dependents receive the financial assistance they require to maintain the quality of life desired
- You own equity in a business
Some business owners may consider securing a life insurance policy to be used as part of a contingency plan in the event of a business partner’s death. Because they do not require any medical underwriting and can be activated in a matter of days, guaranteed issue life insurance policies are one choice business owners may consider. Coverage is subject to receipt of payment and verification of identity as required by law and is effective upon receipt of policy.
- You have a large estate
If you own an estate large enough for your heirs to incur estate taxes when you pass away, the death benefits from a whole life insurance policy can help cover some of those taxes and help protect your loved ones from inheriting a bill that can wipe out roughly one-sixth of the estate’s value.1
- You’ve maxed out your 401(k) or IRA
If you’ve maxed out your contributions to a 401(k) or IRA, but would like to save additional funds in an interest-bearing account, the cash value feature of a whole life insurance policy can help provide an additional means of gaining interest on your money.
- You’re buying life insurance while you’re relatively young
Term life insurance is generally more affordable the younger you are when you buy a policy, assuming that you are in good health at the time. If you are looking to purchase life insurance at a young age, you may want to consider that a term policy could eventually expire while your spouse and dependents still rely on your income. Purchasing a new term policy at a future time is typically more costly.
If you purchase a whole life insurance policy while you are relatively young, you typically won’t have to worry about the policy expiring any time before you pass away.
Life insurance from AIG Life Insurers
Browse the many life insurance products available from AIG Life Insurers to help you determine whether whole life insurance is worth it for your financial goals.
¹ Urban-Brookings Tax Policy Center Microsimulation Model (version 0217-1).