LifeStyle / Monday, February 19th, 2018

Question by annika s:

What is the benefit of whole life insurance?

My husband and I have been advised to buy a significant amount of whole life insurance as a safe way to invest. We have just started our family and I am a little wary. I am not really sure I comprehend why it would be superior to do this than to invest in bonds, annuities, etc. Any ideas? answers?

Answer by Ron B

You do NOT want to invest in whole life. First, your savings are generally going to gain very small interest amounts. Second If somthing happens and one of you passes away, your benefit will not be that large. Third, whole life is costly and the amount of money can seriously effect a budget, especially for a growing family.

Instead of a whole life program you want to invest in term life insurance, and invest the difference. This is where you are only insured for thirty years or so and then the insurance ends. First, term insurance is cheap, it is not going to be a big piece of your monthly spending. Second of all your benefit if one of you dies is much larger, You can get ten times the coverage for less money. Third, you will not need tons of life insurance in thirty years when your kids have left the home and made it on their own.

For your savings, simply open a ROTH IRA account. When you make the term insurance payment take the extra money you would have spent on whole life and put it in the ROTH. If you do this you will see significantly more savings when you retire, and it will not be taxed as income when you take it out. This plan will leave you with more money in the long run,and more flexability in
the short run.

Answer by Brian B

Don’t do whole life insurance. Insurance is not a good mechanism for investing. Buy term insurance only and invest outside of insurance.

Answer by victorschool1

Life Insurance: They bet you live, you bet you die, I never did like that concept. Regarding WHOLE vr TERM, with WHOLE part of your premium is an investment and you get it back with interest some day. Regarding if the investment part in WHOLE is superior or worst than other investments, well, a person would have to see all the details, make assumptions about substitute investments, etc. so it is hard to say (for me anyway).

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