Whole Life Insurance – Myths, Truths & the Term Alternative

Financial Bloggers and Life Insurance Agents – Take Note! In the battle of Term vs. Whole Life…I am about to shock many of you by simply saying that “Whole Life Insurance is not the best life insurance option for most Americans!”  

Yes you heard me right, and I am introducing the term vs whole life insurance calculator to show you in cold hard numbers why I am making this assertion.

You won’t find many independent life insurance agents who will come out and be this frank.

One of the reasons why many agents won’t tell you this is because the commissions they make from Whole Life policies are huge!

The truth is that the vast majority of Americans are much better off buying Term life insurance and investing the difference in what they would pay for a Whole Policy.

Don’t get me wrong! Whole Life is a great alternative for some high income earners and many financial advisers may, in some specific circumstances, recommend that these policies are advantageous, but not for most of you.

For the average American income earner, we feel that it’s better that you should buy a Term policy and avoid Whole Life insurance.

Quick Guide: Term vs Whole Life Insurance

• Simple Facts About Term vs. Whole Life Insurance
• Talk to a Financial Advisor First Before Purchasing Whole Life 
• Whole Life vs. Term Life Calculator 

Simple Facts About Term Versus Whole Life Insurance

When considering term vs whole life insurance pros and cons, one must consider that most people generally only need a life insurance policy to last until they retire.  Hopefully you are (or should be) placing extra money into a 401(K), IRA, mutual funds or some other investment vehicle to build and plan a nest egg for retirement.

Buy term and investing the difference is a concept involving term life insurance and investment strategies that allows individuals to eventually “self Insure” and provides an alternative to permanent life insurance. Wikipedia 

Now, a number of agents out there will say that if you’re not good at investing, then you need whole life, which has a cash accumulation feature which will provide a savings vehicle for you later in life.

Sounds good, but there are many drawbacks to this notion.

• The Whole Life Savings Myth

First of all, it’s really not that hard to arrange to have (x) amount of dollars automatically deposited in one or more investment vehicles. If you’re planning to spend a lot of money on a Whole Life policy then it’s just as easy to divert those funds  into other investment vehicles.

Another major drawback to Whole Life is that these policies are way more expensive than Term policies. I ran a quote for one individual where she could choose to pay $700 annually for a Term policy, or pay $8,700 for a Whole Life policy with the same amount of death benefits!

She could immediately earn 8% on average using the extra $8,000 a year to invest elsewhere which would compound over time. By the time she retired, she would have enough money saved to be financially self-insured!

Yes, the market might have its ups and downs, but anyone who is considering whole life is considering it for the long term, so then we should also compare our investing it an alternate fund as a long term strategy, so short term market dips don’t hurt so much.

Most of the leading financial gurus such as Suze Orman, Dave Ramsey and many others also agree that the average American who buys life insurance is best served by buying Term and
investing the difference.

• Whole Life Fees and Commissions Are Expensive

Another thing that many agents fail to tell you about Whole Life, is that due to built in fees and commissions, it takes at least 12 – 15 years before you really begin to accumulate any significant cash value. In the first year alone, the agent may receive anywhere from 55% to as high as 100% in commission from the premiums you pay.

Another argument that agents might use to persuade you to buy a Whole Life policy is to claim, regardless of what the market is doing, that you will always earn a guaranteed moderate rate of return. This is true, but they fail to tell you that you will earn next to nothing toward cash value accumulation for approximately the first 3 years!

Why? Most of the premiums in the first year go to the agents commission. For the next 10 years or so, most of the premiums go to administrative fees and towards covering the death benefits. It’s only then, that will you start to reap the advantages of the cash value accumulation.

If you happen to experience financial set backs and let your policy lapse, and have not reached the stage of cash value accumulation, then the huge sum of money you spent on those expensive premiums is flushed down the proverbial toilet.

If you happen to survive until the end of the term, one might use the same argument about term insurance. This is a moot point, as Term insurance provides an absolutely necessary financial safety net, and does so until you reach the age of retirement.

By then, you will have built up your own retirement savings portfolio, the house will be paid for, and the kids will be out of the nest making their own money. You likely won’t need a policy anymore. And, by the way, you can also get a big chunk of change back if you opt for a Return of Premium Rider.

Talk to a Financial Adviser First Before Buying Whole Life

I know it sounds like I’m trashing Whole Life, but let me just say again – “Whole Life is only a good option for certain high income earners and for those in certain financial situations, and is NOT the best option for the average American.”

I’m not saying that the average American shouldn’t buy Whole Life, but don’t just accept the sales pitch the life insurance agent gives you before you sign up for a policy.

The person you want to speak to as to whether you should buy a whole life policy or Term life policy is an experienced financial adviser. They can outline the pros and cons of both, and let you know what other alternative, more f
inancially advantageous, financial investment vehicles may be available to you.

Term vs Whole Life Calculator 

I am pleased to announce that Huntley Wealth now has a Term vs Whole Life Insurance Calculator. The calculator will analyze term and whole life premiums to show the difference over 10, 20 and 30 years from an investment standpoint. It will ultimately illustrate that “buy term and invest the rest” is the better deal 95% of the time.

If you have any questions about term vs whole life insurance pros and cons to determine which is better for you, let me just say that we aren’t going to give you some lame sales pitch. We will give you straight talk when it comes to life insurance, so call us today at 888-603-2876  and we will answer all your questions!