Note: This article provides some guidelines that producers can use to help their clients better understand whole life policies.
Traditionally, whole life insurance is the foundation of conservative life insurance portfolios. It offers guarantees on the premium, death benefit and cash value. And, dividends can accumulate into significant cash values over a long period of time.
It is tempting to use the accumulated cash value to purchase additional life insurance coverage later, as needed. However, you must be very careful in accessing these funds to avoid crippling the policy and diminishing its value in your portfolio.
Here are some guidelines to follow:
(1) Review your old strategy. What was your original reason for selecting a cash accumulation product? Understand that, if you now deplete your whole life policy of cash, then you will have less cash for later needs, such as retirement.
(2) If you want to borrow cash from your current whole life policy, then first understand how such a loan will impact your policy over time. How much will your premiums increase? How much will the death benefit decrease?
(3) If you want to stop making premium payments on your current whole life policy (in order to use that money to fund new coverage), then first understand the ramifications of stopped payments. And understand that you may need to resume those premium payments at some time in the future.
Your whole life insurance carrier can provide you with illustrations showing current and future values for a variety of strategies. Educate yourself so you can make an informed decision that is in your best interest.
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