Whole Life Insurance as an Investment Tool

Whole life insurance provides the insured with permanent death benefit coverage, which the beneficiary enjoys. The insurance may also contain components of saving in which the value of cash may accumulate. The interest often increases at a fixed rate. The primary purpose of whole life insurance is to grow the cash value. The policyholder can contribute more than the scheduled premium.

Whole life insurance in Singapore has cautioned many families from financial instability if they lose their loved ones. The insurance pays a lump sum amount in case of death or a premium policy where a family will get paid in case of total and permanent disability or death. Several insurance companies with whole life insurance in Singapore have flexible plans to caution your family when the worst happens.

In Singapore, many people are embracing the whole life insurance as an investment tool because of the following;

• Has long-life coverage – Unlike term life insurance which lasts for a specified number of years, whole life insurance lasts for life.

• Provided the policy was active upon the insured’s death, whole life insurance is paid to the beneficiary.

• Whole life insurance has a saving component where the policy owner can borrow or draw some cash.

• The cash value earns a fixed interest rate in the whole life insurance.

The majority of life insurance policies are bought for risk management. The death benefit that the beneficiaries get protects them against financial loss upon unexpected death.

Its purpose is to provide money, pay off debt and provide income to the survivors. Whole life insurance is used as an investment tool mainly because of its tax benefits. Especially for a wealthy family, the death benefit can provide a lot of tax savings.

How Whole Life Insurance Works

When you pay for whole life insurance premiums, some money goes to the insurance cost, others to the administrative and sale fees, and the rest to the policy cash value. Whole life insurance is used mainly by people who want to pass money to their dependents because of its tax benefits. This is how whole life insurance works;

If you use $5 million to pay for whole life insurance in a one-lifetime premium that is tax-free, the death benefit according to your trust is approximately $15 million.

The insurance company is set that, in case of your death, the company will collect the proceeds of insurance, which are tax-free, and start remitting interest income to your children.

The $15 million will eventually be paid to your grandchildren after the death of your children. From an investment angle, the life policy has reduced the cost of transactions that could have been used.

The grandchildren receive $15 million as a death benefit without paying taxes. Even in the case of inflation, the family will experience a minimal decrease in their wealth across the three generations.

As your cash grows, you may receive dividends if you bought your whole life insurance from a mutual insurance company. The cash value in your whole life insurance is an investment that grows over time at a guaranteed rate.

The cash value for whole life insurance is low for the first 10 to 20 years due to the coverage costs, so investing when you are older is not recommended.

How to Access Your Whole Life Insurance Policy Investment Gains

The cash value in the whole life insurance is not added to your death benefit if you pass away. Referring to the example above, the children receive the $15 million, which is the death benefit, but $5 million, the cash value, is not figured. The insurer keeps the amount, and you can either use it or lose it. You can access it by:

• Taking a policy loan – The insurer can use the cash value as the collateral to give you a loan. Your cash value will still grow according to the interest in the plan.

• Taking divided as cash. You can get divided as cash when you have a whole life insurance plan with a mutual company. You will not pay for income tax as long as the amount doesn’t exceed the money spent in the premium.

• Selling the policy – If the spouse dies and the children are well off, you may choose to sell the policy at a higher value than the cash value but less than the death benefit as it would have been through a life insurance settlement.

• Surrendering the policy – When you surrender the insurance policy to the insurer, you will receive the cash value as the benefit.

Disadvantages of Whole Life Insurance as an Investment Tool

• Expensive Premiums – The premiums for whole life insurance are high compared to other insurance plans due to the cash value.

• Longer Commitment – The policy has no specific end date, and much more, you have expensive premiums to pay each month.

Final Thoughts

If you plan to accumulate more wealth in the future, then whole life insurance is for you. Many insurance companies offer whole life insurance in Singapore, from Manulife LifeReady Plus, AIA Guaranteed Protect Plus II, AXA Life Treasure, and many others.