Is whole life insurance worth it?

8 benefits of whole life insurance

Whole life insurance can be a powerful financial tool for you and your family. Here are five reasons why you may want to apply for a whole life insurance policy if you have a protection need.

1. Whole life insurance provides lifelong protection to your family

Whole life insurance offers death benefit protection that can keep your family financially secure if you pass away. And because you are fully protected with your first payment, it can also be a good way to leverage your money. Since the death benefit on a whole life insurance policy is guaranteed, keeping your policy for a lifetime is nearly a foolproof—and in most cases, tax-free—way to leave money to your loved ones(Instances where the death benefit could be taxable include there being accrued interest in the policy, the policyholder names the estate as the beneficiary, or the insured and policy owner are different individuals.)

2. Whole life insurance allows you to pursue cash value growth that is not subject to market risk

Whole life insurance offers guaranteed cash value growth that builds at a steady, dependable pace,¹ making it a strong complement to other fixed-income investments in your portfolio. New York Life allows you to customize your policy, with options to shorten your premium-paying period, which can help accelerate cash value growth and reach a paid-up policy sooner. Since the growth is guaranteed and tax-deferred, the longer you keep the policy, the more cash value will continue to grow.

3. Whole life insurance sets up a replacement for your “human capital,” if needed

Whole life insurance is a way to arrange for the replacement of your human capital if you’re no longer around to provide for your family. Your human capital consists of the wages, benefits, Social Security payments, and any other unrealized forms of compensation that you would normally expect to receive in the future.

4. Whole life insurance offers tax advantages

One of the key benefits of whole life insurance is its favorable tax treatment. The cash value grows tax-deferred, meaning you don’t pay taxes on the gains as they accumulate. Additionally, the death benefit is generally paid out income tax-free to your beneficiaries. If the policy is structured properly, you can also access the cash value through loans or withdrawals, often on a tax-advantaged basis as you protection needs change in the future.* These tax benefits can make whole life insurance an effective tool in your long-term financial planning, especially for those looking to maximize tax efficiency over their lifetime.

5. Whole life insurance is a good solution for retirement and for safeguarding your assets

Whole life policies are guaranteed to build cash value over time, and this cash value can be accessed to help you pay for a new home or launching a business. Upon retirement, when your life insurance needs decrease, you can use that money to supplement your income during down markets. Instead of selling off portions of your portfolio when prices are depressed, you can use your policy's cash value while the market is down, giving your other assets time to recover.²

6. Whole life insurance is great for "reinvesting" your dividends

One of the benefits of purchasing whole life coverage from a mutual company is that you will be eligible to receive dividends,³ if declared. Many policy owners use their dividends to purchase additional coverage (through paid-up additions), which provides more death benefit protection, more cash value accumulation, and more dividend-earning potential. While dividends are not guaranteed, they are commonly awarded to eligible whole life policy owners. So the longer you keep your policy, the more dividends you’re likely to collect. If you prefer, however, you can simply take your dividends in cash or use them to pay future premiums, or deposit them in an interest-bearing account.

7. Whole life insurance offers level premiums and lifelong coverage

With whole life insurance, your premiums remain the same throughout the life of the policy. This means you won’t have to worry about increasing costs as you age or if your health declines. The lifelong coverage ensures that your beneficiaries will receive the death benefit whenever you pass away, provided premiums are paid.

8. Whole life insurance can enhance your estate planning

Whole life insurance can play a key role in estate planning. The death benefit can provide liquidity to pay estate taxes and other expenses, ensuring that your heirs receive the assets you intended for them. Additionally, policies can be structured to help maximize the wealth transferred to your beneficiaries.

Whole life insurance tax benefits

Whole life insurance offers several tax advantages that can enhance your financial strategy.

• Tax-deferred growth: The cash value of your whole life policy grows on a tax-deferred basis, meaning you don’t pay taxes on the gains as they accumulate within the policy.
• Tax-free death benefit: The death benefit paid to your beneficiaries is generally income tax-free, providing your loved ones with financial security without additional tax burdens.
• Tax-advantaged access to cash value: You can access the cash value of your policy through loans or withdrawals, often without incurring immediate income taxes. This can provide a source of funds for emergencies, or supplemental retirement income.
• Estate tax benefits: In some cases, the proceeds from a life insurance policy can help pay estate taxes, preserving the value of your estate for your heirs.

These tax benefits can make whole life insurance an effective tool in your long-term financial planning, especially for those looking to maximize tax efficiency over their lifetime. As tax laws can be complex and subject to changes, consult with a tax professional to understand how these benefits apply to your specific situation.

Related Content

New York Life Insurance Company(NY, NY) is the issuer of New York Life Whole Life, including Custom Whole Life and Secure Wealth Plus. In most jurisdictions the Whole Life policy form number is ICC18217-50P (4/18). State variations may apply.

SMRU # 7490200.

¹Premiums and policy options vary based on factors such as age, health, and coverage amount. All life insurance applications are subject to underwriting, and premiums remain fixed for the life of the policy

²Guarantees are based upon the claims-paying ability of the issuer.

³Dividends are not guaranteed. Guarantees are based on the claims-paying ability of the issuer.

*Accessing a policy’s cash value will reduce the available cash surrender value and death benefit. Policy loans accrue interest. Certain tax advantages are no longer applicable to a life insurance policy if too much money is put into the policy during its first seven years, or during the seven-year period after a “material change” to the policy. If the cumulative premiums paid during the applicable 7-year period at any time exceed the limits imposed under the Internal Revenue Code the policy becomes a “Modified Endowment Contract” or MEC. A MEC is still a life insurance policy, and death benefits continue to be tax free, but any time you take a withdrawal from a MEC (including a policy loan), the withdrawal is treated as taxable income to the extent there is gain in the policy. In addition, if you are under 59 ½, a penalty tax of 10% could be assessed on those amounts and upon surrender of the policy.