Have you ever been subjected to an insurance pitch where the agent tries to sell you a whole life insurance? If you are not familiar with whole life insurance, it is permanent life insurance that covers you for life. The policy also includes a savings component that is called the cash value which is tax deferred. Quotes for whole life insurance are higher than term life with coverage for a specific number of years because you can borrow against the cash value or surrender the policy in exchange for cash.
Important things you should know before taking whole life insurance
- It is worth buying a permanent life insurance as part of retirement planning as long as you have maxed out contributions to tax advantaged retirement accounts that includes 401(k) plans and IRAs. It is also important to have money to spare in low-yield accounts. If there are unpaid loans, it can reduce death benefits.
- The return on cash value is not guaranteed because it you back out from the policy after a few years, you will pay a surrender fee with no cash value for the years of paying thousands of dollars. If you buy whole life insurance, you have to understand that it is a long term commitment with cash value that accumulates slowly. Significant growth will only be evident after 20 years.
- Not all insurance policies pay dividends. Only the mutual insurance companies pay dividends and the amounts are not guaranteed. Dividends will be minimal on the early years of your policy because it depends on cash value.
- Whole life insurance can be an estate planning tool only if the estate is large enough to be taxed upon death. If the reason for the insurance is for funeral expenses, there are other ways to plan like opening a bank account.
If you are planning to get life insurance (ประกันชีวืต) in Thailand, make sure that all your questions will be answered. Ask yourself if there are people you care about who will need financial support when you die. However, remember that whole life insurance has a long term duration that extends until death.