Is investing with whole life insurance a viable consideration? Let us take a look at the product and see.
Whole life insurance is permanent insurance designed to take care of a family's financial needs after death.
That there is a cash value accumulation and a dividend is not incidental...even though it is not guaranteed. These things may not be enough to consider investing with whole life insurance a viable undertaking.
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Whole life was created to take care of permanent death needs. In other
words, it does not matter when you die as long as the policy is in force
at the time of your death the face amount of the policy will be paid.
But, is investing in whole life insurance make good business sense. The answer is yes, and no. You will not likely get a 100% to 200% return on your investment like you can get on some real estate investments or the stock market after a while...if you are lucky. What you will get is a fairly reliable return in the long run.
There is a
guaranteed cash value,
which means that, in the long run, you will likely not lose your money.
Whole life insurance
should be considered a cushion, or a lifeboat that provides ready
cash for your family
when they need it most. At the time of your death they are going to
need cash, but emergencies do arise at times when you least expect them,
during your lifetime.
The cash value of a whole life policy, at that time, is like a savings account that you forgot you had. So, investing with whole life insurance may not be a good idea, but saving in a cash value whole life insurance policy is a good thing to do.
If, however, you are strapped for cash at the time of purchase it may be best to buy term insurance as a temporary measure.
The advantages gained by investing with whole life insurance comes at a cost. The premiums
whole life insurance policy
is much more than that of a term policy, as part of the premium goes to
funding your cash value, which, incidentally is tax deferred.
The whole life policy has a loan value which is a portion of the cash value. You can get your hands on this in the event of an emergency, or any other need you may have for immediate cash.
Careful consideration should also be given to investing with whole life insurance and investing a portion of your income in real estate, stocks and bonds, mutual funds etc. You should try to create a very balanced investment portfolio. Balance varies depending on the amount of money we are talking about. I will discuss at another time.
Another thing to make note of when considering investing with
whole life insurance is that the premiums of these policies are loaded
at the front end. What I mean is that all, or most of, the expenses
incurred in issuing the policy to you are charged to your first few
The larger amount coming out of the first years premium. These costs arise from medical examinations, inspection reports, administrative expenses, and of course the agents commission. So, it will take a while before you accumulate any substantial cash value.
Another thing to think about if you should consider investing
with whole life insurance, is the company you buy the policy from. There
is something that not enough people know about. All
life insurance companies
are not the same. There are several companies that keep their expenses
very low and their cash values very high as a result.
Let us take two of these as examples. Northwestern Mutual Financial Services and Massachusetts Mutual Life Insurance Company are known for more than fifty years to outperform most of the rest. U.S.A.A. life is also fantastic. For proof check A. M. Best reports.
Because of their performance, these companies have yielded more to their policyholders than the rest. In some cases they have even outperformed real estate and the stock market. Make no mistake about it these companies are blue chip. They can make investing with whole life insurance look pretty good.
If you were to compare the numbers you would be surprised. Let us
take for example investing a given sum of money in the highest yielding
mutual fund that you know of. Let push the envelop a little further.
Let us look at their performance over the past 30 years, for that given sum of money invested over that period. Examine how much money you would have today had you invested that same amount of money each year...
Now let us put the same money in a whole life policy in these
insurance companies over the same 30 year period. You will be surprised.
In most cases the cash values derived from the whole life policies in these life insurance companies would be more than the cash you would receive from you mutual fund. We have not even taken into consideration the other benefits built into a whole life policy.
Most life insurance companies, however, have not experienced that kind of performance so, in general investing with whole life insurance cannot be considered the most profitable thing to do.
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I recently did some research on the development of the 30 year term insurance policy over the years. What I learned was quite interesting.
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