Is Whole Life Insurance a Good Investment? (2024) (2024)

Is Whole Life Insurance a Good Investment? (2024) (1)

Explore Whole Life Insurance as part of your long-term investment strategy to help protect your health and wealth.

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Understanding Whole Life Insurance

Whole life insurance is one of the most popular options of what is called permanent life insurance. Whole life offers death benefit protection for your loved ones and, for you, cash value accumulation to use for retirement or other financial goals.

Several major components make up whole life insurance. Among them are:

  • Cash value component: Allows money to accumulate on a tax-deferred basis
  • Death benefit: Pays out when you pass away
  • Policy loans: Allows you to borrow against your policy’s cash value
  • Premiums: Must be paid to keep your policy active

The amount you pay in premiums depends on your age at the time you get your policy, your health condition when obtaining coverage and the type of permanent policy you choose.

You may also convert a term life policy to a whole life policy. To help illustrate how this works in practice, let’s look at an example:

Joe buys a $500,000, 20-year term life policy at age 40. He pays $50 per month. When he turns 60, he decides he wants more security for his family, so he converts his term insurance into a universal/whole life combination with a $500,000 death benefit. With this new policy, he can build cash value as part of his financial plan over time through paying additional premiums each month above what is needed to cover the cost of his insurance ($50/month).

Joe now pays $250 per month in premiums, which cover his original term cost plus builds some cash value each month inside his new plan. Depending on market performance, the cash value of the policy accumulates tax free until Joe needs it later during retirement. If Joe were to die before reaching retirement age, his beneficiaries would receive both his accumulated savings as well as the full face value of the policy death benefit of $500,000.

Joe’s original policy was term life, a popular policy that provides coverage for a set period with no additional benefits aside from the death benefit. Universal life insurance is another type of coverage that also offers cash value accumulation in addition to a death benefit. Whole life insurance falls under the “permanent” umbrella because it provides lifelong coverage with both death benefit protection and cash value accumulation.

Benefits and Drawbacks of Whole Life Insurance

Investing in whole life insurance offers an array of benefits, from lifelong coverage and a guaranteed death benefit for the policyholder’s family. Whole life policies also have fixed premiums that won’t increase, allowing policyholders to budget for that cost and build cash value.

One of the key advantages of whole life insurance is that it gives policyholders access to their cash value through loans or withdrawal options. This can be beneficial in times of financial hardship, although withdrawals reduce the death benefit and may incur tax penalties.

A potential drawback is that premiums for whole life insurance policies are usually higher than those for term life insurance. (That’s because of the longer coverage period and additional policy features, such as cash value accumulation). Policyholders must consider their financial situation before taking out a whole life policy to ensure they are making the right investment decision.

How Whole Life Insurance Works as an Investment

Whole life insurance is a permanent coverage, one that provides lifelong protection for policyholders and offers an additional cash value component. This permanent element allows policyholders to accumulate wealth at a tax-deferred rate, though it may not be as high as other investments. If needed, the cash value can also act as an emergency fund or provide access to loans with agreed upon interest rates.

When considering whole life insurance as an investment option, there are many factors to consider, including premium prices and potential returns. Premiums typically cost more than those of term life policies. But some plans may offer options for investing within the policy, such as stocks, bonds, mutual funds or money market accounts, which have varying levels of risk.

Before investing in any policy, compare rates, fees and surrender charges (if you plan to cancel before the maturity date). People who buy whole life insurance as an investment should assess how easy it is to get your money from the cash value, through withdrawals or loans.

When Whole Life Insurance is Worth It

People often wonder if a whole life policy is a good investment. The answer depends on each person’s situation and long-term goals.

Whole life insurance can be an excellent way to protect your loved ones financially and ensure that they’re provided for when you die. It also offers a way to build cash value over time, which you (or your heirs) can use to pay off debts or cover future expenses. The cash value can provide tax-advantaged growth on investments, an attractive feature for those who want to maximize financial returns.

For people with long-term financial goals that include providing a death benefit for their beneficiaries, whole life insurance is worth considering. While premiums may be higher than term life insurance, the lifelong coverage provides the necessary coverage along with the potential for cash value growth. For people with loved ones who rely on them financially, the death benefit from a whole life policy will help ensure that their family is taken care of should something happen to them.

Example of Life Insurance as an Investment

Whole life insurance is a sound investment option for those looking to ensure their loved ones are taken care of if they pass away or become disabled due to illness or injury. This type of policy provides both death benefit protection and cash value accumulation, allowing you to access funds without selling the policy. A bonus is the tax-deferred growth of the cash value, which can help your money grow faster than a savings account or traditional retirement account investment like an individual retirement account (IRA).

Premium payments for whole life policies are also flexible, allowing you to make level premiums that become more affordable over time. Additionally, these policies offer guaranteed death benefits that’ll pay out regardless of how the stock market or other indices perform.

Before investing in this type of policy, however, it’s important to compare different providers by looking at premium costs, rates of return and fees. Understand all aspects of the coverage and assess the ease at which you can access the cash value. Consulting with a financial advisor can help you determine if whole life insurance is right for you based on your needs, goals and lifestyle.

Is Whole Life Insurance a Good Investment? (2024) (8)

Best Whole Life Insurance What is Whole Life Insurance? Term vs. Whole Life Insurance Permanent Life Insurance Is Whole Life Insurance a Good Investment? Convert Term to Whole Life Insurance

The Bottom Line

Whole life insurance is an effective tool as part of a long-term financial solution. It offers lifelong coverage, death benefit protection and the potential for tax-deferred growth through policy loans and withdrawals. Even so, it’s important to weigh the associated costs against such benefits before making any decisions.

Premiums are typically higher than those associated with term life policies, and policyholders should also be aware that any cash value taken from their policy could be subject to taxes or surrender fees. It’s a best practice to compare rates and fees from different providers, understand your coverage fully, assess how easily you can access the cash value component of your plan and consult a financial advisor who can help you determine if whole life insurance is right for you.

When all factors are carefully considered — including premiums, rate of return on investments, and death benefit amounts — whole life insurance can provide not only peace of mind but also an ongoing source of financial security. For this reason alone, it may be worth investing in a whole life insurance policy as part of your overall portfolio strategy.

Frequently Asked Questions About Whether Whole Life Insurance is a Good Investment

Whole life insurance is typically worth the cost for people between the ages of 25 and 50, even if you don’t yet have a lot of people depending on your income or services.

The two main disadvantages of whole life insurance are its higher cost compared to term life insurance and the fact that any dividends or profits earned are taxed as income.

The main difference between whole life insurance and term life insurance is that whole life insurance provides financial coverage for the entire life of the policyholder, while term life insurance provides coverage for a specified period. Whole life insurance also includes a savings or investment component, which term life insurance doesn’t have.

If you have feedback or questions about this article, please email the MarketWatch Guides team

Is Whole Life Insurance a Good Investment? (2024) (9)

Randy PiersonContributor

Randy Pierson is a writer and the executive vice president of sales & distribution at Gordon Marketing. With more than 30 years in the insurance industry, Randy asserts a large degree of industry experience to support advisors in growing their life insurance and annuity businesses.

Is Whole Life Insurance a Good Investment? (2024) (10)

Tori AddisonEditor

Tori Addison is an editor who has worked in the digital marketing industry for over seven years. A journalist by trade, her experience includes communications and marketing management in the nonprofit, governmental and academic sectors.

Is Whole Life Insurance a Good Investment? (2024) (2024)
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