Have you ever mentioned to a friend or family member that you've been thinking about buying life insurance? If so, then you've probably received a lot of advice about whether to buy term life versus whole life insurance.
The fact is, both term and whole life insurance will pay a specified amount to your beneficiaries when you die. However, whole life insurance can often provide you with a bit more flexibility and benefit options - especially if you think you'll need to use the policy benefits for a specific purpose.
A checklist for considering whole life. Do you:
… Have family health issues?
Many whole life policies offer a guaranteed insurability rider that allows you to buy additional life insurance at a later date (such as every five years or at certain ages) without being subject to a health exam. This can be a worthwhile benefit to include in a life insurance policy if you have reason to believe that your health might change in the future, or if you have medical problems in your family.*
… Have a child with special needs?
Caring for the needs of a child with a disability can be a lifelong responsibility. Because whole life is permanent (as long as required premiums are timely paid), and you can't outlive your policy, you can ensure that funds will be available to take care of a special needs child when you can't.
… Have estate tax concerns?
Will your family be left with federal or estate taxes after you die? Purchasing a whole life insurance policy and designating your heirs as beneficiaries is one way to provide the cash your family can use to pay such taxes. This could help prevent them from having to sell off the assets in your estate in order to pay the tax man.
… Have a business that you're part owner in?
If you're a co-owner or partner in a business, you might consider using whole life insurance to fund a buy/sell agreement. Simply stated, a buy/sell agreement is when each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owner uses the death benefit to purchase the deceased owner's share of the business. In this situation, whole life insurance may be better suited than term because it's a permanent policy and won't expire after a specific period of time as long as the required premium payments are timely made.
Whether to purchase a whole life policy (and determining how much to purchase) is a personal choice that begins with the question, “How much life insurance do I need?”
*The base policy is subject to underwriting and may require an initial health exam to determine eligibility. Guaranteed Insurability Riders are typically only available at policy issuance.
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