Whole life insurance has become something of a dinosaur. After all, term insurance can provide the same coverage for a lot less money or a lot more coverage for the same amount of money. But despite all the advantages that term insurance has, are there times when whole life insurance is the right choice? Yes – and here are a few of those situations.
When you can’t save money otherwise
Everyone says “buy term and invest the difference”, an excellent strategy, at least on paper. But what if you aren’t the type who saves money? Many people aren’t and fail to admit that either to themselves or to others (like insurance agents!). But this can be denial at your own peril. You’ll save money buying term, but you won’t invest the difference.
If you don’t have a natural inclination to be a saver – or can’t muster the enthusiasm to become one – then you should look seriously into automatic pilot-type forced savings plans, such as a whole life insurance policy.
Whole life insurance policies contain a cash value provision, which simply means that that part of your premium goes into a savings feature that is part of the policy. The cash builds over time, and since it is invested it grows even faster. On a long-term policy it’s possible to build a six-figure cash balance.
That’s not a bad accumulation if you’re not otherwise capable of saving and investing money. And while the cash value of the policy is building, it won’t even feel as if you’re saving money (and the sense of self-denial that usually brings). All you’ll be doing is paying your premiums as required.
Locking in low rates for young children
It’s no secret that life insurance rates rise with age – which is a compelling reason to choose term coverage later on in life. But when you’re young, as in a child, whole life insurance makes a lot more sense. The rates on whole life are really low for kids, so if you can take a policy on them – as early in life as possible – you will be locking in those low rates for the rest of their lives.
This is also where the cash value feature of whole life becomes a real advantage. In addition to locking in the premiums for life, whole life will also provide an investment benefit that can come in handy as your children grow. The cash value can be used to help pay for a college education, to buy a first car, to make a down payment on a house, or to use it as the foundation for a growing investment portfolio.
When you’re looking for permanent insurance coverage
At any age, term life is always less expensive than whole life. But the downside is that soon enough the term will expire and you’ll be paying higher rates, either on the existing policy or on any new ones that you take. But if you want to avoid that dilemma, at least partially, you can take a whole life policy that will provide you with a base of coverage with level premiums for the rest of your life.
This can be especially important if you don’t expect to have a substantial amount of assets as you get older. Many people have less need for life insurance as their investments grow – in effect, they become self-insured. If you don’t think that this will be your situation, that you will need life insurance for the rest of your life, than whole life will provide you with permanent coverage.
When money is no object!
The primary reason anyone buys term insurance rather than whole life is price. Term is simply less expensive which means you can buy a larger amount of it. But if money is no object, then whole life can be the better deal over the course of a lifetime. You’ll be paying the same premium at 55 that you were paying when you took out the policy at age 30.
What’s more, the cash value can build to the point that you have sufficient funds in the policy to convert it to a paid-up policy for life. You go from level premiums throughout your life to no premiums at all. That’s not a bad deal – if you can afford the premiums early in life when you first take the policy.
The next time someone recommends “buy term and invest the difference”, think long and hard about that. It may not apply to you! If you see yourself in any of the above situations, take a long, hard look at whole life.
