Is Whole Life Insurance Recommended?

Scales measuring whole life vs term life insurance. Is whole life insurance recommended?

You are in the market for life insurance and have been asking around, talking to various agents about your options. You notice a similar trend keeps coming up. After speaking to so many agents, why is whole life insurance recommended so frequently? The easiest answer is also the most troubling. In short, whole life insurance tends to net the highest commission for insurance agents. Simply put, it makes them a LOT of money. These products often garner the largest commissions for the agents, creating a horrible conflict of interest.

Is whole life insurance recommended for you? In many cases whole life insurance simply isn’t worth the investment—you’re much better off with a term life insurance policy! It is also important to understand a little more about whole life insurance first. The product can be set up in a myriad of ways, but in general you pay a premium until you die. The longer the period of time, the lower the premiums; and when you die the proceeds are passed on to your beneficiary. Every whole life policy is guaranteed to be paid out at some point (since the only guarantee in life is death); as such the premiums tend to be significantly higher than a comparable term life policy. Like other types of permanent insurance, this product is a hybrid of insurance and investment and the policy accrues value as time goes by.

The issue with whole life insurance for most people relates back to the costs associated with the product. For those looking to protect their income while they work, whole life insurance premiums can cost several times more than the term life alternative. This represents a significant amount more monthly that can be better served paying off debt or capitalizing on higher return investments. Term life insurance policies can offer similar death benefits for the term of the policy, giving the insured more money each month to pay for crucial things like mortgage payments, investments or college tuitions. These big ticket items, paid month after month, that can lead to a more secure financial future after retirement. To that end, many whole life policies aren’t the investment opportunity that they are purported to be.

The myth of whole life insurance as an investment

Oftentimes, whole life insurance is sold as a great investment vehicle, but in reality, whole life insurance yields lower returns than traditional investments! This is in part because the entirety of the premium is not applied to investment opportunities. When you pay your premium part of the money goes to toward buying insurance, part go to profit and overhead for the insurance company, and part goes to commission for the salesman. What is left then goes to the cash value portion of the policy, the only portion that will pay dividends. Traditional options offer a far greater percentage that goes directly to investment.

Add to this the exorbitant fees associated with whole life insurance, it is not always the most practical option. In most cases the commission on a whole life insurance policy is generally 100 percent of the first year’s premiums and then six percent for every subsequent year. This gives many agents powerful incentives to sell whole life insurance over term. It is crucial that you work with an insurance agent that you can trust to work in your best interest.

Do you have any questions about whole life versus term life insurance? Call us today, and see why term life insurance can benefit your loved ones!

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Term Life Insurance products are offered through TMFS Insurance Agency LLC, a separate company, affiliated with Financial Engines Advisors, L.L.C. (FEA), in states where licensed. TMFS Insurance Agency, LLC is under common ownership with FEA. Each entity is its own separate entity that provides services for its client independent from the other.