Why Whole Life Insurance May Not Be the Best Financial Choice

Why Whole Life Insurance May Not Be the Best Financial Choice

Do you really want a Life Insurance Bill for your Entire Life?

If you ask most insurance agents what type of life insurance you ought to have - many will suggest a form of cash value life insurance called Whole Life Insurance. Whole life, also called permanent life insurance is a form or life insurance that is mixed with a "cash account." This is the opposite of another type of life insurance, a pure form of life insurance called Term Life. Term life, rather than lasting forever, has a preset amount of years that the policy is proposed to be in force for.
This cash accounting a whole life policy, in some people's eyes can serve as a type of investment and often earn small dividends accrued yearly. Buy insurance and get an investment for free? Sounds great right!  The truth is much more nuanced and complex. In part this is why I generally suggest that people seeking life insurance do their homework and asks their insurance agent lots of questions before they purchase it.

The Whole Life Question?

First off, there really is no free lunch in the financial world. Whereas a pure form of life insurance known as Term Life insurance can be had for perhaps just 10% of the cost of a similar whole life policy, Whole life will cost you a "whole" lot more.
Second, because whole life insurance is so much more expensive, most insureds tend to purchase a much smaller amount of a death benefit. This smaller benefit amount can mean a huge difference in the case that the insurance actually ends up needing to be used during the life of the policy. Would you rather have in force $100,000 in Whole life insurance or $1,000,000 in Term Life when tragedy hits?
Third - Whole life insurance is not only a financial insurance policy for your entire life, its also a yearly bill for your entire life. Most financial gurus will suggest that when you are on a fixed income, during retirement, that - cutting back on expenses are in your best interest.

When Can Whole Life be of Real Value?

Now, there are situations of course when cash value life insurance plans can be of a real value, such as families that are in specific need of a Special Needs Trust or for Extremely wealthy families. But in general for people that qualify for a level term life insurance policy - its really quite hard to see why Whole life would be the best life insurance choice.

A Smarter Alternative:

There is of course no one best solution for everyone, that is why it makes sense to educate yourself about the types and kinds of insurance and ask your insurance agents lots of questions. But given the high costs, fees, and complexity of whole life its really difficult to see why it is a good choice for many.

Term life, a pure form of life insurance, which is sold in bands of guaranteed coverage time, is generally a very simple and affordable way for most consumers to purchase the coverage that they and their family require. Ask your insurance agent for recommendations for the length of time that is most suitable given your situation.

About the Author:
Scott W Johnson is the owner of WholeVsTermLifeInsuranceand a Broker Agent based in California. License oH11625.