In my last blog post, I went over the worth of a guarantee. This is a continuation of that post, which you can read here.
Why can cash value be guaranteed using whole life insurance? Because of the following guarantees:
A guaranteed mortality rate. This means that your cost of insurance inside the policy is pre-determined. No ugly surprises or “imploding” policies.
A guaranteed expense factor. Policy expenses are guaranteed not to exceed a contractually determined amount.
Guaranteed growth of your cash value. Whole life policies guarantee a minimum interest rate (typically 4%) subtract the internal costs of the policy. This growth does not include dividends, which have historically been paid, but are not guaranteed.
Your cash value will not “roller coaster ride” with stocks, interest rates, real estate prices or politics, and your savings are guaranteed to grow even during market crashes and periods of rock-bottom interest rates.
Perhaps you’re hoping for more than the minimum guarantee? You’ll love this next guarantee then…
A guarantee of participation in any profits of the mutual company. Premiums are used to pay claims, cover operating expenses and policy costs, and fund required reserves. Profits over and above operating expenses are distributed back to policyholders in the form of dividends. This is because mutual insurance companies are “by definition… owned entirely by their policyholders,” according to the National Association of Insurance Commissioners, and “profits earned are returned to policyholders….”
Dividends, though not contractually guaranteed, have historically been paid in addition to the guaranteed minimum returns of whole life policies. Declared annually, dividends have been paid by major mutual life insurance companies every year for well over 100 years through every economy imaginable. Whole life dividends were paid even through the Great Depression and the Great Recession, which gives you an idea of how solid this guarantee is!
By purchasing Paid-Up Additions with dividends, policyholders increase both their cash value and the amount of the death benefit. Through PUAs, dividends become part of the guaranteed cash value, guaranteed to rise every year. In this way, your dividends earn their own dividends!
Your ability to borrow against your policy’s cash value is also guaranteed by your policy contract. Typically you can borrow an amount equal to 90 or 95% of your cash value from the insurance company. And you won’t ever have to justify your reason for borrowing or prove your “creditworthiness” to do so. With many mutual life insurance companies, you can even lock in a guaranteed interest rate for any future policy loans.
Customized guarantees. Depending on which riders are chosen, you can also be guaranteed:
- the ability to purchase more insurance in the future, regardless of health,
- that premiums will be paid for you in the event of disability, typically until the age of 60 or 65 (depending on your policy),
- access to a portion of your death benefit for long-term care, if needed, and
- the ability to accelerate your death benefit in the case of a terminal illness.
Are guarantees right for you? You don’t need to ask your doctor, just take the quick true/false quiz below:
T/F You understand the importance of having safe, liquid savings in addition to investments.
T/F You want a good, safe place to store cash where you can earn more than the banks are paying.
T/F If you could easily leverage more cash, you could capitalize on more opportunities.
T/F You enjoy sleeping at night and don’t want to leave your financial future to chance.
T/F When you pass away, you want to leave a legacy (or an additional legacy) to loved ones and/or special causes you care about.
If you answered “True” to three or more questions, we guarantee you’ll appreciate whole life insurance!
Julie Ann Hepburn can show you how to use whole life insurance strategically so that YOU benefit from your own life insurance.
And to find out how a whole life policy might perform for you… simply contact us. We would be happy to provide you with an illustration as well as additional information, and there’s no obligation… guaranteed!
Julie Ann Hepburn, National Private Client Group © Prosperity Economics Movement
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