Life Insurance…Part 2: Whole Life Insurance
Refer back to Part 1. Term Life is all you need
Ok seriously though, don’t buy into Whole or Permanent Life Insurance. It is marketed to benefit you for life, but what Agents and Agencies won’t tell you is that it actually benefits them because it lowers their financial risk for you.
Here’s some notes on Whole Life:
> Whole Life comes with a face amount (death benefit) and a cash value component. This is different than Term Life who doesn’t offer cash value.
> This cash value grows minimally. Let’s say extremely conservatively at 3–4%.
> The face amount (death benefit) dictates your monthly premium. As an example, a $300,000 death benefit will cost you a whopping $400+ a month!!
> Did I mention Whole Life Insurance is expensive? You can get double the face amount with Term Life for nearly $350 less than the example I gave above.
> Whole Life policies cover you until death or age 100. It will pay out beneficiaries the face amount and the cash value accrued. Term Life policies are written between 10–20 years, some offer 30 years
> Many times Financial Advisors will ‘sell’ you on Whole Life being both as security and an investment. I promise you, it is NOT an investment. That cash value is similar to a Bond if you are looking for a comparison.
> You can take ‘policy loans’ from the cash value of Whole Life without any tax implications. But there’s usually a delay before these funds are available to you. Most agencies require up to 5 years that you must make routine premium payments before you can take a policy loan.
> For insurers, the accumulation of cash value reduces their net amount of risk. Meaning, because you are paying in money to build this cash value, it lessens the amount of money the insurer will have to pay out.
> If you have thousands of dollars worth of debt and haven’t maxed out your retirement accounts, don’t get Whole Life. Term Life is an inexpensive way to protect you and your assets while you work to pay down debt and build your retirement.
As you can see I’m NOT a fan of Whole Life. Very few instances exist where a whole life policy is beneficial
