Lets be clear about a few things:
#1 Whole life insurance is for crazy people. Period.
#2. Whenever these whole life/cash value sales agents try and sell you the tired routine of “its the perfect time to get whole life insurance because you are young and healthy!” its because they see you as a walking commission check. Plus their kid needs a paid for college education.
Here’s a general rule in life. Whatever the salesperson DOESN’T make a ton of commission on…think about buying that one first.
Heres an example of why.
Whole life vs Renewable Term
• $200 monthly premium paid over 30 years to gain $125k in insurance payout at the time of death. (remember the actual cash value you paid into is kept by the insurance company upon death)
◦ $125k with over 30 years of inflation will only feel like $53,376.02 to your family.
◦ $200k with over 50 years of inflation will only feel like $16,692.64 to your family.
• $40 monthly premium paid over 30 years to pay out $500k in death benefit.
• The other $160 not paid to the life insurance company can be invested and earn a far greater return.
◦ Over 30 years, at the market average of 9.7%, that amount becomes $327,374.21
◦ Over 50 years, at the market average of 9.7% that amount becomes $2,085,340.68 (this is even factoring in when your premiums increase because you haven’t passed at the 30 year mark)
If you die in 30 years with whole life, your family gets a $125k payout which will feel like $53k due to inflation. Your life insurance keeps the cash portion of your policy.
If you die in 50 years, with whole life, your family gets a $200k payout that will feel like $26,708 due to inflation.
If you die in 30 years with renewable term life insurance, your family gets a life insurance payout of $500k in addition to a personal investment account that has $327,374.21 in it.
If you die in 50 years, with renewable term life insurance, your family gets $1million (or whatever you decide to renew your life insurance policy at) and gets a personal investment account with $2,085,340.68 inside of it.
Net net: by allowing these product salesmen (I don’t call them financial advisors) to collect huge bonuses from selling us whole life insurance, we are costing our families tremendous amounts of money.
And yes your premium will rise once you renew term life at the 30 year mark, but it will be around the same as you’re paying now. Thats how inflation works. Salespeople try to use this to trick/scare people all the time into signing up for whole life insurance.
But think about this – even if your premium doubled in terms of real dollars, it would be a drop in the bucket from what you get as a benefit. Remember, the reason to take out renewable term insurance is so that you can’t be denied due to any medical condition.
More info on the whole life insurance hustle:
The sad part is its always some “friend” or family member that convinces us to sign up for this whole life insurance crap too. Just like the MLM industry.