whole life insurance pros and cons?

Posted on Jul 11, 2008 under Insurance Information |

289 Responses to “whole life insurance pros and cons?”

  1. pro: The policy will stay with you as long as you live. It builds up a cash value that can be borrowed from of claimed on surrender of the policy. Some policies can be made paid up at a certain age.
    con: It is generally more expensive then term insurance (which is only temporary insurance)

  2. Financial Answer Guy Says:

    mrjo pretty much nailed it. the same argument can be expanded to all permanent insurance.

    UPDATE:

    Pension Maximization is a good point OPM. Also, unless Congress acts, Estate Taxes are another reason one might have a significant need for coverage later in life. In addition, beyond the "need" there are also sometimes "wants" that would call for maintaining large policies into one's later years, such as endowments, charitable gifts to colleges or other organizations that are important to the individual.

  3. One other pro, if held for life it costs about 1/6th of term.

    The con is that most people need little insurance for their entire life. The exception is married recipients of pensions, who can in certain circumstances improve their retirement income by replacing the joint annuity with a single annuity and a paid up policy of equal value to the pension. Most insurance obligations disappear with age, except burial and final medical expenses. Still, if you are young, $10,000 today is a lot of money with inflation in 80 years. Even in six decades, from a back of the envelope calculation, it becomes $110,000.

  4. Whole life (or cash value) insurance builds up cash value, but term insurance is cheaper. I say buy term and invest the difference in a good no-load mutual fund at vanguard.com or fidelity.com. You can also invest the difference in your 401K at work. The cash value you build up from these investments will probably be higher than the whole life insurance.

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