Intelligent people buy whole life insurance! What a statement to make.
It is true though.
Why do they buy whole life when term is so much cheaper?
The answer is that what appears to be cheaper may not be cheaper. Let us take a look.
With most term insurance policies you get a low premium. You are therefore able to buy much more insurance for your dollar than you would with whole life insurance.
You should look ahead though. Let us suppose you don't die within say a 20 year period, there is nothing to get back.
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You pay more for whole life insurance, considerably more. The
difference is that if you don't die in say 20 years and you decide you
don't need the policy anymore you are likely to get back all your money
if you bought a participating policy from a top carrier.
You see, whole life insurance has cash values. When you add the dividends paid by the insurance company the total is likely to be considerably more than you paid in up to that point. Keep in mind though that dividends are not guaranteed.
Whole life insurance can be seen as an endowment to age 100. In
other words if you live to age 100 you have a cash value equal to all
the money you put in in the form of premiums.
If the carrier is a high performing one they pay a hefty dividend which can be distributed in many different ways.
If you choose to use your dividends to purchase paid up additions or if you chose to have them accumulate interest you are likely to break even, when added to cash values, much sooner.
I have seen cash value break even points before the policy is 10
year old. This usually comes from the well established companies, many
over 100 years old.
Let me repeat though that dividends are not guaranteed and are based on how efficient their investment portfolio is and how well they do in keeping down administrative costs.
Keeping the above in mind is would seem to me that whole life
insurance is really cheaper than term. The skeptics will argue that if
you bought term and invested the difference you would be better off.
I am not too sure of that. With the way many investments go today your money may do better in a solid life insurance company. It may be a good thing to buy whole life insurance from one of these carriers.
Variable annuities, as well as variable life insurance policies,
were intended to help the consumer get much more for the dollar. Ask
yourself this question, how well have they done over the past 10 years
or even the past 20 years?
The fact is they have not performed up to expectations. You wont make a huge profit if you buy whole life insurance but you will enjoy the coverage for the rest of your life or, if you choose, the cash value built into whole life policies.
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