Remember, we discussed how whole life insurance can be a good idea. Call or Text: Ever experienced a person that says something that’s technically true but mischaracterizes it to shape their own narrative? Buying a universal life insurance policy might make sense for you when it comes to choosing a type of life insurance coverage. The commercial was about life insurance, but it wasn’t your typical sales pitch. Let me give you background of my financial status and then ask you if it is a good idea or not. A guaranteed universal life (GUL) policy will last your lifetime, but these policies don’t have the cash value like whole life. Whole life insurance is a more complicated product than term life insurance. Is Whole Life Insurance Ever A Good Idea? But the real question is this: the returns of whole life insurance are bad compared to what alternative? In other words, the carrier protects itself by keeping cash value low in the first few years to compensate for those policyholders who cancel their policies. For one, advertisers do a great job of pulling at your heartstrings to make you think it’s the best thing since home delivery for your groceries. When a whole life insurance policy is sold (and they're always sold, never bought), the buyer and seller generally focus on the investment portion of the policy, not the insurance policy. But, that happens. The whole life insurance is like term life insurance plus a very conservative investment. Unlike term insurance, it doesnt change as you get older. Whole life insurance coverage is a more complicated product than term life insurance. The reason I say that is because the whole life insurance doesn't have the best returns and isn't the cheapest way to insure your life, but it still provides positive returns and provides life insurance protection for life. …why whole life insurance is bad…there’s no shortage of information that makes useless comparisons. Life insurance is something you may consider adding to your financial plan if you're interested in providing a measure of security for your loved ones. Chances are, the cash value in the illustration is much less. Your agent probably won’t tell you this, but whole life insurance is a very bad idea for most people. I think I know what you mean. However, it definitely isn’t for everyone. I am trying to decide if I should switch to a term policy to reduce my monthly expenses. Just the way most asset purchases function. It’s horrible. It’s not that hard to find something that beats something else. It is like whole life without the cash value. You die. You don’t need a permanent death benefit The vast majority of Americans, and especially high-income Americans like physicians, will, at some point, no longer depend on their earnings from work in order to live. I would classify your strategy with the whole life insurance to be very conservative, but not a bad idea. to protect your loved ones financially. The prime example of this is when you are covering temporary needs, in case you unexpectedly die, with whole life insurance. Since it is complex, you also have to speak to an insurance representative to even get a quote, and policies vary widely from insurer to insurer. Wouldn’t they spend more time mailing out notices to policyholders bestowing the virtue of taking policy loans? If I can't help you, you've learned a little more, and we'll part as friends. And, yes, even for those high-dividend participating policies agents like to throw around here and there. A whole life insurance policy can make sense for high net-worth individuals. While the agent should have discussed the guaranteed cash values, I bet your attention focused more on the non-guaranteed values. You can always use this “difference” to then pay for your funeral or use it to buy a policy with a smaller face amount. So I'm just going to sum it up the best I know how briefly. It is this purpose of whole life insurance that I would like to deconstruct here. The Top 5 Reasons Why Whole Life Insurance Is Bad. We often see scenarios where a series of random dollar amounts are paired with hypothetical rates of return—most commonly 8% and then compared to illustrated values of a life insurance policy. If you were sold a whole life policy, the selling point could have been on the cash value. This argument is kind of patronizing in how it dismisses the value of whole life insurance. John, you make great points. All of this can cost policyholders a lot of time, money, and it can make it feel like buying the policy was a bad idea. If an agent is telling you that you need whole life insurance without a concrete reason, run, don’t walk, away. If you are using the whole life for a long-term need such as paying your burial expenses, then the whole life conversion may have been a good decision. All death benefits from life insurance – whether term, whole life, or another type – is income tax-free. Whole life insurance has been a pillar of income to life insurance salesmen for years. For me life insurance is no different from health insurance or vehicle insurance. Whole Life Insurance is very bad idea. They go by a variety of names (e.g. This is what whole life and universal life are for (and these insurances are ONLY for that purpose). All things being equal, it is much cheaper than whole life and offers lifetime coverage. Be aware to weigh your options carefully. BIGGEST RIPOFF INSURANCE PRODUCT EVER. It is often recommended, particularly to high earners, as a guaranteed investment with some wonderful tax benefits. Not to get into the weeds, but that cash value is yours. Term life is really needed to cover unexpected death. A CD isn’t better or worse than an S&P 500 index fund based solely on the rate-of-return. You probably already know you need some form of life insurance to protect your loved ones financially. Key Point: When considering infinite banking, whole life insurance just happens to be the best vehicle to practice the concept, but infinite banking is NOT whole life. For example, the darling of the personal finance industry, real estate. Obviously not. They still own it and in some cases, they’re still choosing to pay the premiums each year. Many people put money into There are certain whole life policies that will absolutely keep your money when you die—the company will keep the cash value and pay the death benefit to the beneficiary. an EIUL, Indexed Universal Life, Whole Life, etc. There are some exclusions that a carrier won’t pay that you need to read in the contract and be aware. The “is whole life insurance a bad investment?” discussion is a great example of the classic advice we were given when the internet was a fairly new phenomenon and we had only just begun to use it as a resource for information. However, whole life policies are substantially more expensive than term policies, and the rate of returns on the investment portion of those premiums is often low. We will go deeper with this distinction below, but for now, just know that there are many pros of infinite banking when used in conjunction with properly funded life insurance policy . Think about this for a second in a completely logical way…wouldn’t life insurance companies be encouraging their policyholders to take more loans if it were a major source of revenue for them? Whole life insurance is a terrible idea if your insurance needs can be filled by term life. However, a $500,000 whole life policy will cost around $470 per month ($5,300 annually)! You have options. You also made more than 1 comment about having whole life insurance policy to cover burial expenses. What’s more…so much of what’s out there through a quick Google search or two is complete jibberish—it’s either written by someone who has a total lack of understanding or even in some cases by an automated writing tool (bad artificial intelligence). Fill out the form below and we will email you additional customer literature, explaining these options in more detail. Premium rates are much higher than those of term life insurance while receiving the same amount of coverage. It is a cover for an unfortunate event and I am happy if the events don’t occur and the premium is just written off. Truthfully, whole life insurance isn’t bad. Thanks for your inquiry. It’s not even that much of a stretch to say that there are some very popular people who’ve built financial-advice-giving empires tearing the product to bits (in theory). The real danger of chasing returns is that it distorts those things that you can control as it relates to your money. In some very specific cases, term life insurance could be an advisable option, but support is overwhelming for universal life or whole life policies over term policies. I have a small life insurance policy for my mom right now who is 78 and on a fixed income and I need to get another insurance/better policy on her. 1. At some point, you can even cancel the policy and receive the cash value. Please note: whole life insurance is only a bad idea if it does not fit your situation. There’s $27,000 of cash value. So without further ado, here are 8 reasons why whole life insurance is a bad investment. The Bad: The life insurance business is like any other business — there are poor, average, and excellent companies selling poor, average, and excellent policies. You are buying life-long insurance that you don’t really need! Contrast this amount to the whole life insurance policy illustration that the agent presented to you. If you die outside of having coverage, the policy doesn’t pay. And it’s an asset that they consider to have performed quite well—in the conversations we’ve had with them. That's why it didn't lose value, but it's also why the returns are very low. Feel free to contact us or use the form below. She plans to retire at 65. We are here to help and work only in your best interest. Why? Well, primarily because it doesn’t really make any sense. Your beneficiaries receive $27,000 cash value and $23,000 death benefit, for the full $50,000. Just like there are with real estate (to go back to our example)…property taxes, insurance, vacancy, maintenance costs etc. It offsets the death benefit. But in particular, for wealthy families in their 30s or . 5 Reasons Why Buying Indexed Universal Life Insurance is a Bad Idea 1. thanks. Bad idea. A few days ago, we set out to find the absolute dumbest arguments against whole life insurance. It’s just not true and to believe borrowing or paying interest is ALWAYS bad is a gross oversimplification of finance. You won’t know how things work out until you get there. Term life will only pay a death benefit if you have the policy in force. No. We wrote as well there are times whole life makes sense and is a good idea, rather than a bad one. b. how the policy was designed with respect to, This example is representative of a whole life policy structure that certainly exists. The children are all grown and successful. Hi Jerry – we have your information, and a follow-up email is on its way. It’s disingenuous to suggest otherwise though thousands of pages on ye olde interwebs would have you believe this is how it works 100% of the time. So a week or two ago a life insurance salesman came onto the forums asking why mixing Life Insurance and Investing was bad. I currently make 60k a year. Life insurance is a tool to protect your family. One thing’s for sure, this sort of thought had to have been originated by someone in their early 20’s who’s never experienced the series of curveballs life throws your way. There are various reasons. That is quite confusing to me. I currently have a whole life policy and pay $131 monthly. Why? Over-leveraging assets is not a good idea, but we all get that. Here are three reasons why buying a permanent life insurance policy is a good idea. We’ll have to speculate a bit on that as it’s tough to know with 100% certainty but what we think they mean is that when you buy whole life insurance, all the expenses are loaded up at the start of a new policy. Whole Life costs you more per year – If you choose the whole life route you will pay 10 to 15 times more a year than for term life and that cash is earning a very low interest rate as compared to a simple S&P 500 index fund. By the way, you should look at this post where we discuss the overuse of 8% as a rate of return in many savings and investment scenarios. The exception you mention is a very small one that doesn't apply to 99% of the US population. You select. This was my first year of work and I saved $10k in my savings which is basically my emergency fund. What should I be looking into? Wow! There is a shred of truth behind this argument, that’s what makes some of these particularly dangerous. I can personally attest to the fact that I’ve heard these from early in my career. You have options. This is probably one of the most annoying statements that people make about why whole life insurance is bad. 1. Invest the difference. Some very famous people (who shall be not be named specifically) have perpetuated this misconception—use your imagination—they host syndicated radio shows, have PBS specials, and speak with authority. The carrier backs and guarantees your cash value. A Toyota Prius gets better gas mileage than a Ford F-150. There is no risk! Hi Michel – thank you for your comments. Term life, whole life, and universal life insurance policies can all be options with some very different provisions. Like universal life or variable universal life insurance, whole life offers an insurance payout and, over time, the policies accrue a cash value that can be withdrawn. Invest $500 a month until your 65 into good performing mutual funds and you'll be worth $3 million or so. The luxury of hindsight offers us the chance to look back. I have read some previous questions where you explained the time for term policies, 10,20,30, year etc, you stated that once that term is up insurance premiums become unaffordable. We have the independent knowledge to assist you in the right decision. Here's why: Cons of Whole Life Insurance: 1) Whole Life Insurance Costs Too Much. I am planning to get Whole Life insurance not necessarily as a life insurance policy but as an investment. Proponents of whole life insurance -- particularly, those who sell it -- will tell you it's a good purchase because it's not just insurance: It's an investment. In fact, it’s probably the most maligned of any financial product. The carrier insures you for your entire life and expects to pay the death benefit. In this article, we discuss the 3 reasons why whole life insurance is a bad idea to buy. There are many options and I will contact you to discuss so you can make an informed decision on what is best for you. Whole Life Insurance is front-loaded. The only people who will tell you to use a life insurance policy to leave an estate are life insurance salesmen.” Wrong! The idea that you have to borrow your money and pay interest on it is half true…kind of. Whole life insurance is a bad idea if you believe that insurance and investment should not be mixed. Or so the bad information informs you anyway. However, the Typically, a whole life policy’s cash value increases by a guaranteed minimum per year and by a larger, “expected” amount that varies each year with changes in the financial markets. Now, that doesn’t make the front-loading of expenses bad, does it? However, in our vigilance to provide you with as much truth as possible relating to all things whole life insurance, there are 3 legitimate reasons why whole life insurance is bad and we’ll share them with you in our next post. But whole life insurance is often also sold as an investment. It’s a bad idea. Everything you planned at 24 has worked out just as you envisioned…right? In fact, statistics show that about one-third of those who bought life insurance policies in 2014 bought permanent life insurance. It’s not that they mean any harm by pointing out such things, it’s just that they don’t yet have the perspective necessary to understand the hubris behind them. Most of us do not. They also provide a non-guaranteed value. It is like whole life without the cash value. It isn't reasonable to compare the "savings account" embedded in an Contrast with indexed universal life, which does not offer guaranteed premiums. 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