Whole Life Insurance as a Christmas Gift for Your Child

‘Tis the season to be jolly, and in this joyous occasion comes the spirit of gift-giving. Kids particularly love this time of the year, since they are mostly the recipients of these brightly wrapped boxes filled with unknown wonders. 

Yet, sooner or later, they grow up, go off to college, get married, have their own families, and they won’t need superficial stuff anymore: they’d need something more substantial.

Why not whole life insurance? This might arouse confusion since it isn’t a typical Christmas gift. However, there are components in it that can be useful for your offspring, especially when he or she becomes an adult.

Whole Life Insurance as an Investment

To get a well-rounded financial plan, any interested individual would need a life insurance policy. If something life-threatening happens, it provides a death benefit for the remaining loved ones, which they can use to clear debts, and final expenses, and cover living expenses.

There is also a cash value component that can also be used to get your child college tuition fees, a first car, or a downpayment for a home loan. 

If you’re shopping around for life insurance, one possibility is whole life insurance. This policy type melds a cash value component with lifelong coverage, which accumulates at a fixed rate. This way, you would know how much it would build over time. 

But what is whole life insurance and why is it a good investment?

What is Whole Life Insurance?

First of all, whole life insurance is permanent life insurance that can cover you for the rest of your life. The policy will not lapse as long as the premiums are paid. It also pays out a death benefit to your life insurance beneficiary when you expire.

Whole life insurance premiums do not change over time and components of each payment are put into a cash value account that earns interest.

The component for cash value increases at a guaranteed rate of return on a tax-deferred foundation, which you can withdraw or borrow from a cash value account. If you decide to stop the life insurance policy, you can opt to do the “surrender value,” which is the cash value minus the surrender charge.

Why is It a Good Investment?

Whole life insurance should not be regarded as a conveyance for investment and be a balance of risk and reward. It is better to think of it as a strategic, tax-favoured allocation of cash flows.

Before the majority of premium payments go to the death benefit fund, some going to administrative costs, and the remaining going to the cash value account.

As time passes, as more premium payment goes to the cash value account, it increases at a guaranteed rate of return. Most life insurance companies themselves have investments in government-backed mortgages and bonds. 

Many whole life insurance sellers are mutual insurers that pay out dividends, which you can regularly add to your cash value account. The longer you continue to add to the policy, the more it will build over time.

Advantages and Disadvantages of Using Whole Life Insurance as an Investment


  • It builds tax-deferred cash value.
  • Cash value accumulated over time can be used for premium payments.
  • You can borrow or withdraw cash value in a policy, which can be substantial if you don’t have a reliance on other financial resources


  • Beneficiaries would not receive the cash value once the policyholder passes. They get the face value of the policy (minus the policy loans and withdrawals) irrespective of how much cash value has built up. The cash value then goes back to the insurance provider.
  • It can take a few years of paying premiums to start getting a substantial cash value amount.
  • Whole life insurance policies can achieve less compared to the kind of returns you can get with other investments.
  • Taking a policy loan and withdrawing money and not paying it back will lower the death benefit being paid out when the insurance holder passes away.

Is Whole Life Insurance Worth It?

Whole life insurance can be beneficial:

  • When you want to leave your money to your beneficiaries any time you will pass away. It can guarantee you can leave a death benefit to your remaining loved ones, without seeing your premiums grow over time.
  • When you want a conservative investment. It can provide stable returns if you are willing to wait. Cash value slowly increases every year and is not impacted by the unpredictability of the market.
  • When you max out the retirement accounts every year. An IRA Individual Retirement Account or a 401 (k) can factor into a long-term savings plan. Once maxing out your contributions each year, you can use your whole life insurance policy to press out a few more tax benefits since the cash value increased tax-deferred.
  • When you want to control your investments. It can provide a fixed rate of return on cash value, with no investment choices, and you cannot benefit from stock market highs.
  • When you like to have money for later. Building cash value in a life insurance policy will be advantageous if you aim to use the cash value. You can use it to supplement retirement savings or pay your kids’ tuition fees, get them their first car, or for a housing loan.

Do not mistake a cash value with a death benefit and building it will not build riches for your insurance beneficiaries. They would not receive the cash value and instead would get the death benefit.


While whole life insurance might not be an ideal Christmas gift, it can provide a lot more beneficial things that your children will need in the future. It is a worthwhile investment for you that your children will get to enjoy.


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