The Whole Truth About Whole Life Insurance
There is a movement happening in the life insurance industry. It’s called The Whole Life Rebellion. It is a movement to inform and educate consumers about the drawbacks to whole life insurance. Whole life insurance has been touted by many agents as the ultimate life insurance product because it offers lifelong protection, premium predictability and guaranteed cash value growth. But does it truly provide “value” for the hefty premium price tag attached? Before you buy a whole life policy, you should understand the whole truth about whole life insurance to see if it is a good fit for your situation.
How Does Whole Life Insurance Work?
Whole life insurance is a pretty simple product. You pay guaranteed level premiums typically to age 100 for a guaranteed death benefit. Your policy ledger will show exactly what your guaranteed cash value and death benefit will be each year. The cash value inside your policy will grow tax deferred and can be borrowed from in the future if needed. Borrowing from the cash value will reduce your death benefit for the amount of any loans plus any interest due. If you buy a participating policy, you may also receive dividends each year that can be used to reduce your premium, buy paid up coverage, leave it with the insurer to accumulate interest or you can take the dividends as cash. People who purchase whole life insurance like the predictability and guarantees it provides with regards to premiums, cash value and death benefit.
How Much do These Guarantees Cost?
Whole life insurance is much more expensive when compared to term life insurance and most universal life products. For instance, a whole life policy can cost roughly 10 to 12 times more than a 25 year term policy with the same death benefit. In most cases, people can’t afford the amount of life insurance coverage they truly need if they choose to purchase a whole life policy. This might be a reason why almost 50% of whole life policies lapse in the first 10 years according to study done by the Society of Actuaries. Although whole life insurance offers multiple guarantees, it requires large premiums that must be paid for your entire life in most cases.
What About the Cash Savings Component?
Whole life policies accumulate guaranteed cash value that grows tax deferred. You can even use the cash value to supplement your retirement income in the future. But before you buy a whole life policy, you should know that it takes quite a long time to build any substantial cash value and the returns are modest at best. In fact, it might take 10 or 12 years in most cases before your cash value equals what you’ve paid in premiums. A whole life policy best serves its purpose over a very long period of time, so keep that in mind before your consider a whole life policy. If one of the main reasons for purchasing a life insurance policy is the savings aspect for retirement funding, consider buying a term policy that lasts until retirement and investing the difference in a Roth IRA instead. In most cases a Roth IRA will provide better returns over time while also providing tax deferred growth and tax free income.
What About the Lifelong Coverage Feature?
Having coverage that lasts an entire lifetime may not be necessary for most people. For most people, the goal of life insurance is to provide income protection during working years when raising a family, paying off a home and saving for retirement. This is a period when you are most financially vulnerable. When you hit retirement age and your kids are self-supporting, your home is paid off and you have saved a retirement nest egg, the need for coverage disappears for most people. This is where term life insurance is an excellent fit. If your focus is lifetime coverage but you are looking for a more affordable option, you might consider guaranteed universal life. It offers lifetime guaranteed premiums and death benefit amounts but is not designed to build cash value so premiums are lower than other permanent coverage products.
Is Whole Life Insurance Really Worth It?
The point of this post wasn’t to bash whole life insurance. In fact, for those who want premium, cash value and death benefit guarantees, whole life insurance might be a good option. It could also be a viable option for high earners who are looking for more tax deferral and are unable to contribute to a Roth IRA (click here for more about life insurance for retirement planning). Before you choose to buy a whole life policy, you should understand that the built in guarantees come at a hefty price and for most middle income families, buying term and investing the difference is a better option. If you are trying to decide which type of coverage is best for you, we can help. We offer free no obligation consultations and we will show you multiple options from many of the best insurers based on your specific needs. We shop over 40 of the top insurance companies for our clients. Please feel free to give us a call at (888) 687-9444 or email us at info@archstoneagency.com if you have any questions.
Get more information about The Whole Life Rebellion.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com. You can also visit our website at www.archstoneinsurance.com.
