Why Consider Life Insurance and What Type
Why you should consider it and what type you might need.
Imagine there’s a stream running through your backyard. It’s not like any other stream. This one is brimming with fish – enough fish to keep your entire family fed and healthy for as long as you all should live. Wouldn’t you do all you could to keep this stream clean and healthy? Maybe install a security camera or two to monitor it?
Well, you’re the stream.
Ensuring that it (and you) continues providing for your loved one should be your top priority, at least as important as equities, bonds, property and all the other “trees” you have bearing fruit.
Truth is, almost none of us plan to die, but many of us are wise enough to plan for it. Life insurance helps provide for:
The replacement of income
Your family counts on your paycheck. How would it be replaced? (Obviously, the coverage equaling 1X annual salary that many companies provide would not typically be enough.)
Funds to supplement retirement income
Would you (or your spouse) have the money to enjoy the retirement you’ve worked your whole life working for?
Growth you can count on, regardless of the market
Whole life provides a guaranteed growth that’s not correlated to the markets.1, 2
Term vs. whole life: Which is right for you?
While most people know that life insurance will pay a sum of money to their beneficiaries if they pass away, they may not be able to explain the differences and benefits of term life insurance vs. whole life insurance. But if you want to protect your family’s financial future, it’s important to know the basics about these two options.
What is term life insurance?
A term life insurance policy is exactly what the name implies: It’s a policy that provides coverage for a specific term or period of time, typically between 10 and 30 years. It’s sometimes called “pure life insurance” because unlike whole life insurance, there’s no cash value component to the policy – it’s designed purely to give your beneficiaries a payout if you pass away during the term.
If you get a term policy to protect your family, you should think about whether your family’s need for life insurance will change before the time the term expires. For most people, that means the kids are grown up and on their own, the house is paid off, and there’s some money that can serve as a protection for the surviving spouse.
What is whole life insurance?
A whole life policy is the simplest form of permanent life insurance, so named because it provides coverage that lasts your entire life as long as premiums are paid. Unlike term, it’s not a “pure life insurance” product because it includes a cash value component. A policy has cash value when a portion of your premium dollars can grow over time on a tax-deferred basis, so you don’t pay taxes on the gains.3
A policy’s cash value provides a number of benefits that you can use while you’re still alive. It takes a few years to grow into a useful amount, but once that happens you can borrow money against your policy’s cash value in the form of loans or withdrawals4, use it to pay your premiums, or even surrender it for cash to supplement your retirement income.
While there are other types of permanent life insurance, whole life is the simplest:
- The premium remains the same for life
- The death benefit is guaranteed
- The cash value grows at a guaranteed rate
For more on the differences between term and whole life, click here. Then, talk with your financial professional.
1 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.
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.
3 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
4 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.
Pub11489 2022-135519 Exp.3/24