Why You Should Avoid Whole Life Insurance

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When searching for a life insurance policy, you’re going to find yourself considering whole life insurance. While it may sound like a good idea, there are a few reasons why you should take pause and consider your other options.

Read on to find out why you’re better off not getting whole life insurance.

First off, what is whole life insurance?

There are two types of life insurance: whole life and term life. Here’s why you should choose term life over whole life.

But first, let’s clarify the differences between the two.

Term Life Insurance

Term life insurance covers you for a specific period of time. In other words, you’re covered for as long as the term you sign up for.

Typically, the term is 30 years. During that term, if you pay your premiums on time, your family will get your life insurance benefits in the event of your passing. Those benefits are predetermined.

Whole Life Insurance

Whole life insurance covers you indefinitely. There is no set term.

You keep paying your premiums, and a chunk of each payment goes to your policy’s cash value. You can borrow from, withdraw from, or surrender that cash as it builds.

Surrendering means you collect the cash value of what you’ve paid so far.

We understand how that may sound appealing, but here’s the tricky reason why it’s not as good as it seems.

Why you shouldn’t opt for whole life insurance

First of all, whole life insurance premiums are much more expensive than term life insurance premiums. They’re pretty unreasonable for most budgets.

If you can’t afford to keep paying the premiums on your whole life insurance at any point, you might have to surrender your policy, leaving you with no life insurance at all.

Secondly, whole life insurance as a way to save cash is not the wisest decision. Why not store your cash in an IRA or 401k? Retirement funds like these actually give you a much higher rate of return overtime than whole life insurance policies, according to The Motley Fool.

Don’t skim over these terms without considering them closely. While there are situations in which whole life insurance might be a better option, for the most part, we recommend term life insurance.

This is why it’s important to always consult a professional before making such a big decision!