You’re considering whole life: Now what?
Individuals have been utilizing whole life to help in a variety of ways:
- Provide protection over your lifetime, not for a temporary period.
- Coordinate with investments to help supplement income from investments while in retirement.1
- Build stable, predictable cash value to help with planned and unplanned life events.2
Perhaps you already have whole life as part of your balance sheet. If not, here are three simple questions worth asking.
1. How should you fund whole life insurance?
Generally, while working, you can use your income to fund whole life. This is considered to be a new money or cash flow allocation. Additionally, you can identify potential inefficiencies on your balance sheet and re-direct those dollars to whole life. It is also possible to transfer income from assets or transfer assets themselves to the predictable asset of whole life.
2. How can whole life be valuable to your protection, wealth accumulation and retirement?
When earning an income, whole life can supplement term insurance and be used to help protect your future income so that you have proper replacement value. Since it is a stable asset, you may be comfortable to take on more growth or risk in your investments. When you retire, whole life may help provide the ‘permission’ to spend principal and interest on your investments rather than just the interest.
3. Is there space for whole life and investments on your balance sheet?
Yes. It is possible for whole life and investments to be present on your balance sheet. In fact, your overall balance sheet may be more well-rounded when you have both whole life and investments.
1 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
2 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.
Pub11464 2022-135521 Exp. 3/24