Whole Life Insurance

Clark Howard and Dave Ramsey constantly say that people should never buy whole life insurance policies and should only buy term life insurance. Based on our experience, I strongly disagree with them.

We bought whole life insurance policies for my husband from a mutual insurance company decades ago. Our cost basis is only 65,000 and we won’t have to pay any more premiums for them because after twenty years the premiums started to be deducted from the yearly dividends and the rest of the dividend is used to increase the cash values as well as the death benefit. As of today the cash value of these life insurance policies is 206,000 and the death benefit is 306,000. The cash values and death benefit of these whole life insurance policies will continue to increase every year from the policies dividends without having to pay any more for them.

On the other hand, with term life there is no cash value and if you stop paying premiums you will be out of all the money you have paid over the years without any death benefit.

Does anyone else have an opinion about whole life insurance vs term life insurance?

Short answer: It all depends on each individual’s situation. There is no one-size-fits-all answer.

Seems like a reasonable hedge depending on interest rates.

I am curious what happens if the insurer goes bankrupt. Does the customer get screwed, or is there some external guarantee equivalent to FDIC?

Interested in the answer to the same question re: term.

brobbs - I am not sure but when we bought our whole life insurance polices we were more concerned about the rating of the insurance company than cost. So we purchased it from a company that was considered to be one of the best at the time and still is. It is currently rated 4.6 out of five stars by one rating service, AAA by Moody’s and A++ by AM Best.

With this in mind, I have heard of horror stories about people who bought long term care insurance from companies that were not highly rated and subsequently went bankrupt. When that happened these long term care policies became worthless.

A lot of young people starting out can’t afford the premiums it would take to get enough coverage buying whole life.

Agree! and if they did, better to put the difference in premiums in an index fund and after say a 20 year term be better off.

I agree that term life is better for a person who doesn’t have many assets and needs a very large amount of life insurance. What is also controversial is how much life insurance a person needs.

Back in the seventies I knew people who bought million dollar life insurance policies who were only earning $20,000 a year. Needless to say, people in that position were worth a lot more dead than alive. Meanwhile my husband who was earning significantly more than that at the time did not have much life insurance.

My father died unexpectedly of a heart attack, during the sixties, when I was in high school and only had $17,000 worth of life insurance. The reason why he had so little life insurance was because he felt that my mother only needed enough life insurance to hold her over until she was able to have access to the money from his estate.

This is the answer because everyone’s financial situation is different.

We reviewed our long term financial situation about 5 years ago and ended up cashing in the two whole life policies we had. Although they were essentially paying for themselves, we knew we could take the cash value and invest it, and that we had enough funds for a survivor to do quite nicely without insurance. Someone else’s results may vary.

1 Like

I had term through my employer.

Discussed it with wife. She agreed to terminating the LI when I offered to take the 100% Pension option if either of us dies. We get less each month but no Premiums to pay. For us, it seemed the right decision. No regrets!

1 Like

So many people end up with a cash value of $50,000 on the $65,000 basis because the cost of the insurance is so high or the commission the agent receives is higher or the insurance company chooses not to pay policy dividends

That said, two reasons I can think of where whole life is important: 1) you have a large estate for federal and/or state tax purposes or 2) you have a prolonged income need beyond a 20 or 30 year term. I’m not sure what kind of guarantees exist with life insurance or annuities that can make them beneficial

I’m thinking that life insurance or annuities are products you’d want to only consider with the fixed income not equity part of your portfolio