3 reasons cash value Whole Life Insurance is a bad idea

Insurance is for insurance and investments are for investing. We don’t mix the two. We always insure the big items such as your car, home, yourself … but we do not use the insurance as a cash value policy. There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type. We do not recommend any of them.

What we do recommend is purchasing Level Term Life Insurance that is 10-12 times your annual income for a term of 15-20 years. There is no cash value element to term life insurance which makes these policies extremely affordable. Take your savings and budget that into your +15% contributions to your Roth 401K or Roth IRA and have MUCH MORE tax free money in retirement.

  1. Whole Life costs you more per year – If you choose the whole life route you will pay 10 to 15 times more a year than for term life and that cash is earning a very low interest rate as compared to a simple S&P 500 index fund.
  2. You can make double or triple in your 401K or IRA – By investing 15% of your income into a simple S&P 500 index fund or better large cap growth mutual funds you can make double or triple long term over a whole life cash value tax free without any of the risks. Furthermore, those Roth IRA or 401K accounts can be inherited by your heirs.
  3. They make a lot of money – not you! If you were a salesperson and you had two products. One of the products had a much higher commission and made more money than the other item – which would you push on your clients? Whole life products make a lot more money for the insurance companies than the term products. Don’t get suckered into this mess by their scare tactics about the stock market returns or security. Their sales pitch does not excuse the math. It just doesn’t make sense.

Don’t leave investing to an insurance company.

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