According to the Insurance Information Institute, 54% of people in the United States were covered by life insurance in 2020. Life insurance provides a valuable safety net for covering expenses you’ll leave behind after passing.

What many people don’t know is that whole life insurance policies can offer financial benefits while you are still alive. These policies can help optimize your cash flow and tax situation. Let’s take a look at why and how you should be taking advantage of a whole life policy.

What Are Whole Life Insurance Policies?

A whole life insurance policy is a type of cash-value life insurance.

These types of policies build cash value over time. A major difference between term vs whole life insurance is that term life insurance, another popular option, does not build cash value.

In addition, a whole life insurance policy remains in effect for the rest of your life, provided you pay the premium.

Advantages for Cash Flow

A whole term life insurance policy provides a guaranteed cash value. As you pay your premium, part of the premium goes towards your cash value.

At the beginning of your policy, a larger percentage of the premium is invested, allowing you to build it quickly. As you get older, a lesser percentage goes towards the cash value.

You can build the cash value in your policy even more by choosing a limited pay policy. With this type, you’ll pay on a predetermined schedule, instead of your whole life. A limited pay policy from Paradigm Life can make it especially easy to budget your cash flow during retirement.

Upon your death, the cash value in your policy goes to the insurance company, not your beneficiaries. Because of this, it is beneficial to use your cash value while you are still alive.

When you need money in the future, you can borrow against your policy. The policy acts as your collateral, making it much easier to secure the money than a traditional loan.

Tax Advantages

Not only does your whole life policy help you build cash you can borrow, but it also offers tax-advantaged growth. This is because the cash value of your policy is tax-deferred. This means you don’t need to pay taxes on your investments.

In addition, once you pass away, the death benefit is paid to your beneficiaries tax-free.

How to Choose a Life Insurance Policy

A few factors can help you get even more out of your policy. One is that your policy offers dividends. A policy like this will greatly increase your cash flow and you can even use it to pay your premiums.

In addition, you may want the option to choose paid-up additional insurance. These “boosters” can help increase your policy’s cash value. This can help you earn more in dividends. Usually, you can purchase these with your dividend earnings, instead of needing a higher premium.

The best whole life insurance policy for you will depend on a few factors. You want one that will work well for optimizing your cash flow. In addition, the whole life insurance cost should be within your budget.

Optimize Your Cash Flow With a Whole Life Insurance Policy

Whole life insurance policies are a great way to optimize both your cash flow and tax situation.

This is on top of the peace of mind they already give to you and your loved ones. Take advantage of these benefits by finding a whole life policy that works for you.

If you found this article helpful, be sure to read our other personal finance articles as well.