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Is Whole Life Insurance Legit?


"Is whole life insurance legit?"

I had to chuckle a little when I read this question because it appears we share a similar opinion when it comes to whole life insurance.  For the record, however, whole life insurance is legit.  The more important question is, is it right for you?

The questions many people face is should I purchase whole life insurance or term life insurance, how much, and who can I turn to to get an unbiased opinion?  You’ve come to the right place.  I do not sell life insurance, but I advise my clients whether or not they need it and how much they should be insured for if they need it.

In general, the vast majority of individuals would be better off purchasing the relatively low cost term life insurance policies and invest the money they would be saving over the more expensive whole life insurance policy.  More often than not insurance salespeople sell these policies as the solution to everyone’s life insurance AND investment needs.  In general, those that need whole life insurance are more like the exception than the rule.  Then who might benefit from a whole life insurance policy?

The first group of people would be those that have a difficult time saving and spend every dollar they make.  We aren’t talking those that are trying to make ends meet because they would not want to pay the high premiums of whole life insurance.  We are talking about those people that if they have some cash in their bank account, they will find a way to spend it.  Many life insurance salespeople refer to whole life policies as “forced savings” because as the premiums are paid a part of the premium is being saved in the form of cash value.

The second group of people would be those that have very high income, have maximized their contributions to 401(k)’s and 403(b)’s as well as their IRA’s.  They may still have the desire for further tax-deferred growth and that could be achieved with whole life insurance or an annuity.  I would still argue that there are better ways to defer taxes by choosing the right investments without having to incur the fees associated with a whole life insurance policy or annuity.

The third group of people would be those that want a guaranteed return and do not want to risk their money by investing it in the market.  A whole life insurance usually has a guaranteed rate of return regardless of what the general market does.  As you can probably imagine, this guaranteed return is rather modest and may have a difficult time keeping up with inflation.  In essence, their purchasing power is simply staying the same over the years.

The fourth group would simply be those that may be too old to qualify for a term life insurance policy or it may not make financial sense to purchase one.

The final group of people would be those looking to purchase a whole life insurance policy as a method of estate planning.  This policy is often placed in a trust and used to provide liquidity to an estate.  This may be because majority of a person’s estate is in non-liquid assets such as real estate or a privately held company.

I hope this was helpful and that I didn’t take too much liberty with your question.  I think this is where you wanted me to go with your question.