Life insurance has been around for a very, very long time. One specific type of life insurance—whole life insurance—is much more popular than many might think. In fact, in the years between 1940 and 1970, whole life insurance was the most popular form of life insurance in the United States.
When the stock market began providing more attractive returns in the early 1980’s, whole life insurance as an investment vehicle started to decline in popularity. However, this important type of insurance coverage is still useful, relevant, and immensely helpful for both the insured and their families.
So, how exactly does whole life insurance work?
Whole Life Insurance, Demystified
When a whole life insurance policy is purchased, the insured’s estate receives a death benefit of a set amount of money when the insured dies. This death benefit coverage is paid for through the regular premium payments that the policyholder makes over time. But, by making steady, ongoing premium payments on a whole life insurance plan, there’s more than just a death benefit that provides value.
Whole life insurance can be thought of as a kind of piggy bank that only the insured can access while they’re alive. However, this piggy bank also comes with an important feature: regardless of how much money gets put into the piggy bank, only a set amount (the death benefit) will be paid to others upon the death of the insured.
In this way, the cash value of the insurance policy is only an asset for the policyholder while the insured is still alive. This unique feature makes whole life insurance such an attractive investment for seniors and their families, as it allows for the growth of equity alongside insurance coverage for final expenses like cremation, burial, and funerary services.
Example: $30,000 in Whole Life Insurance Coverage
Let’s consider an example scenario involving Lucas, who is 62 and healthy for his age. Lucas has had term life insurance in the past, and he is starting to plan for retirement. Part of doing this involves planning for the expenses that his death will incur for those he leaves behind—whether that happens in 10, 15, or 20 years (or longer).
After meeting in-person with Shell Mutual Insurance to locate the best whole life coverage for him, Lucas agrees to move forward with Mutual of Omaha. The coverage that makes the most sense for him includes a $30,000 death benefit for a premium of about $20 per month.
[Note: This is just an example. Contact Shell Mutual Insurance directly to learn what your premium payment would be.]
A few things happen over the next 20 years:
- Lucas continues to pay into his whole life insurance policy, accruing cash value
- To finance a family vacation to France, Lucas takes a short-term loan against his policy cash value, at a competitive interest rate
- The family vacation loan is paid back before Lucas’ death
- Lucas withdraws money from his policy on as as-needed basis, never reducing the amount of the death benefit; only the cash value changes.
- The money in the whole life insurance account is invested, paying returns that are included in Lucas’ taxable income.
- After Lucas passes, the cash value of the policy is nullified, as the insured is no longer alive to use it.
- The $30,000 death benefit is paid to Lucas’ estate, which is then used to finance final expenses.
This is just a single example of how whole life insurance can work. There are many options and alternatives to consider, which is why a consultation with a Shell Mutual Insurance professional is suggested.
Making Sense of All the Options
Now that you have an answer to the question, “How does whole life insurance work?”, where do you go now?
At Shell Mutual, we’re dedicated to helping our clients sort through the vast array of whole life insurance coverage options available to them. We tap the power of more than a dozen different insurance providers to arrive at the most ideal whole life insurance product for your needs.
What’s more, we pride ourselves on offering a human component to insurance. We want you to feel comfortable throughout the insurance shopping process, which is why we offer in-home, one-on-one consultations at a time and date that works best for you. Your designated Shell Mutual Insurance representative will work with you to ensure you’re getting the best coverage considering your unique situation.
When you’re ready to learn more about what coverage might work best for you, contact us. We’re here to help you on your path to a more worry-free, protected future.