Should You Purchase a Whole Life Insurance Policy?
As a general proposition, Montana Life Group does not universally endorse whole life insurance. There are certainly exceptions, which we’ll touch on in this post, but overall we feel the majority of people are better off purchasing a term life insurance policy.
To begin with, whole life insurance tends to be more expensive than term life insurance. Unfortunately, due to the costs of whole life insurance, many people who purchase whole life insurance end up being unable to purchase a large enough policy to fully insure them and their families.
The purpose of life insurance should be to protect your loved ones if a tragedy occurs and you’re no longer around to provide for them. If you can’t afford a whole life insurance policy sufficient enough to provide for your family, then you’re better off purchasing a term life insurance policy.
Can You Afford Whole Life Insurance?
So that’s the first question you should ask yourself: Can I afford a large enough whole life insurance policy to sufficiently provide for my loved ones?
If the answer is “no”, then stick with a term life insurance policy.
If the answer is “yes”, then there are some additional issues to consider. Would you and your family be better served using the money saved by purchasing a term life insurance policy on things such as paying down debt, contributing to a retirement account, or simply saving the money in case you lose your job?
Again, term life insurance costs less than whole life insurance. It’s worth considering whether having that extra savings available now is a better use of your money. While term life insurance only pays your beneficiaries if you pass away during the specified term (anywhere from 1 to 30 years or more years), whole life insurance lasts for your entire life.
The “Risk” of Outliving Your Life Insurance Policy
All things being equal, there’s no “risk” that you’ll outlive your whole life insurance policy. But is that really something you should be concerned about? Again, remember the purpose of life insurance: to provide for your loved ones if you’re no longer around to provide for them. Do you anticipate your family will still be dependent on you more than 20 or 30 years from now? If not, is it worth paying a premium for whole life insurance?
The Perfect Whole Life Insurance Candidate
Ok, so while it’s obvious whole life insurance isn’t for everybody, there are those who might prefer it. Our image of the perfect whole life insurance candidate? A high-wealth individual who has taken advantage of other tax-deferred investment opportunities, can afford the higher premiums of a whole life insurance policy, and wants to guarantee his beneficiaries receive a pay out on the life insurance regardless of when the person passes away. Neda Jafarzadeh, a financial analyst for NerdWallet, contributed an article on whole life insurance for the U.S. News & World Report that you might find valuable if you’re looking to do some additional reading on the subject.
See my screen