"The safest way to double your money is to fold it over once and put it in your pocket." -- Frank McKinney Hubbard
Whole life insurance
is a type of life insurance policy that is marketed as an investment or "forced savings" plan. The claimed benefit of a whole life policy is that it builds cash value,
which is the investment or savings part of the policy. When compared to other ways you could invest your money, a whole life insurance policy is simply not a good
investment.
Some people falsely believe that their beneficiary will receive both the cash value and the death benefit if they die. However, when you die, your
beneficiary will receive whichever is greater, either the policy death benefit or the accrued cash value. As an example, let's assume you purchased a $50, 000 whole
life policy and at the time of your death the cash value had grown to $30, 000. Your beneficiary would receive only $50, 000 upon your death, not $80, 000. In that
example, at least $30, 000 of the death benefit paid came out of your pocket, more if you factor in the portion of the premiums that did not accrue as cash value.
Sound like a good deal? It is for the insurance company because it only had to pay $20, 000 or less to your beneficiary.
"But you can borrow the cash value, "
the life insurance salesman will tell you. Most people never do that, and when they do, they have the privilege of paying interest on their own money. Further,
whatever has been borrowed and not repaid when the insured dies is deducted from the death benefit that's paid out. Using our example above, if you had borrowed
the $30, 000 in cash value from your whole life policy, and had not repaid it before your death, your beneficiary would only receive $20, 000.
What about the
interest rate you can earn? You can get a better interest rate elsewhere. And as for the life insurance sales pitch that you can borrow the cash value tax-free, you
can borrow any money from any source tax-free. Before you throw thousands of dollars away on whole life insurance premiums, consider the many other ways you
could better save or invest that are not connected to a life insurance policy.
