Is Whole Life Insurance The Best Policy For You?
Whole life insurance is a high performance policy design that is specifically targeted to consumers who value guaranteed outcomes, tax deferred growth, strong long-term rates of return and and THE LOWEST NET COST LIFE INSURANCE COVERAGE.
Let’s consider some of the more common questions about Whole Life:
- Is whole life insurance right for you?
- Does Whole Life cost more than other types of coverage?
- Why does net cost matter so much?
- Which company offers the best Whole Life?
Is Whole Life right for you?
The best candidates for Whole Life are life insurance buyers who want and need guaranteed coverage for life and have the budget to handle higher premium payments in the early years. The net cost of Whole Life is far superior to term insurance, challenging the mistaken belief that term is cheaper. Whole Life insurance is one form of permanent coverage offering predictable outcomes and certainty. It is not the right policy for short term needs or for people with limited budgets. Whole Life policies create cash value from your premium payments. The cash value growth is measured on two parallel tracks. One is on the guaranteed track and the other fluctuates through a variable dividend rate.
Does Whole Life cost more than other types of coverage? Yes and no. The distinction here is the essence of Whole Life. The early cash flow for Whole life is more than other types of insurance, such as term insurance or universal life. However, it is not inherently more “expensive” than these other types of insurance and it does not “cost more” than other life insurance types. The structure of the premiums in the early years is what is different. Whole Life requires more premium in the early years when high income earners can afford higher premium outlays. The upside of these higher premiums in the early years is LOWER PREMIUMS of NO PREMIUMS in the later years.
There is a coverage crisis in the United States. For decades, there has been a growing number of un-insured’s, under-insured’s and incorrectly insured’s. People in their 50’s and 60’s are experiencing problems they did not expect. Maybe they missed the conversion deadlines in their term policies and now face underwriting challenges that increase the cost for new coverage. In their 30’s and 40’s, maybe they were told they would not need coverage in their 50’s and 60’s? Term was cheap at 40 years old. “Buy term and invest the rest” sounded like a wise plan. The perfect storm hits when the term insurance expires and we did not invest the difference.
Whole Life policyholders never face this situation. Their coverage never expires if premiums are paid. Their premiums never increase. Twenty years down the road, they have policies flush with cash and manageable premiums, if there are premiums at all.
The net cost of Whole Life is much lower than term insurance. Whole Life builds a cash value component within the policy and stays inforce for life. Once the cash value is included in the net cost evaluation, the proper cost analysis always favors Whole Life.
The monthly payment for a 5-year car lease requires more cash flow than a monthly payment for a 3-year lease assuming you are leasing the exact same car. Does that make the car more expensive for a 5 year lease? Of course not. The same logic applies here. In fact, while the car is depreciating, the life insurance policy is appreciating. To say Whole Life is more expensive insurance by definition may be deceptive and simply not accurate. Dave Ramsey and Suze Orman have freshman ideas about permanent insurance coverage because they have no professional designations or practical insurance experience, in my opinion.
Cost is a critical factor to consider when selecting a life insurance plan that is best for your individual needs. You can weigh the approximate net cost of the policy by simply measuring the total premiums minus the total cash accumulation at different intervals.
Whole Life Versus Term Life Insurance. Here are some of the differences between them:
- The Policy Duration. With whole life coverage, you are insured for life. As long as your premiums are kept up to date, you’ll be covered, whether you’re fifty or ninety. Term life ends at a certain age, or after a pre-determined number of years, leaving you without good options if you want coverage to last longer. We tend to underestimate our desire for lifetime coverage when we are younger.
- Whole Life accumulates cash value. Cash value grows tax-deferred, like an IRA. You can borrow or use the cash on a tax free, low cost basis.
- Future premiums can be paid from the cash value.
- Flexibility. The cash value is protected from market fluctuations. The interest is tax-deferred and there are no limitations on contributions. You will likely earn dividends on the cash value as discussed earlier.
Which Company Offers the Best Whole Life Policy? There are only a few companies dedicated to superior whole life products. There is competition among them and each has developed niches where they excel. Thinking about the process of buying a suit can be helpful. When buying a suit, it must be customized or tailored just for you. The same is true when buying a Whole Life policy. There are many other factors to consider, especially which company and which product you choose. No one insurance policy is going to be perfect for everyone.
By doing your research and working with experienced, independent professionals, you will come much closer to finding the best policy to suit your needs. Please contact me at 561-869-4500 or complete the contact form on this site to schedule a complementary discussion.