So why buy whole life insurance at all?

Question

I've dedicated much of the past month researching life insurance. A metlife rep swears whole life is the best thing since "sliced bread" and has dedicated much of her time selling it to me. All of my research indicates to "Buy term and invest the difference" which is what I plan on doing. But I'm still curious, if the wiser choice is to buy term, then:

Who actually buys whole life? Why?

Answer 1

It IS the best thing since sliced bread...for the agent. Before there were so many different investment vehicles that are better, whole life was a wise choice for building a financial foundation - you needed to be able to provide for your family if you weren't around to do it.  Mutual funds weren't commonplace, IRA and 401K accounts did not exist.  Now, if you're disciplined enough to actually invest the difference, term is the only way to go.

Who still buys whole life? People who get talked into it by agents looking out for their own self interest ahead of the client's.  What ethical person would advise a retired person to take IRA money - already a tax-deferred investment - to convert that money to a tax-deferred annuity?  The advantages a tax-deferred annuity MIGHT provide are completely negated by that money already being tax-deferred, and the 'yield guarantees' these things promise come at the expense of limits on the rate of return, not to mention high fees and ridiculous surrender charges, which pay the outrageous commission the agent gets upfront.  Agents who push this c**p aren't in it for the client.

Answer 2

A rule of thumb:

When you select TERM insurance, you are RENTING the coverage.

When select a whole life policy, your are BUYING the coverage.

You have to decide what type of coverage is right for you.

Keep in mind that TERM rates increase annually or in increments (5 year, 10 year, 20 year, 30 year) and at some point, the rates will be higher than you will want to pay...so, you go without it.  

Most folks get the idea of "I'll buy term and invest the difference" yet they fail to "invest the difference" and as they get older, with the increase in the term insurance, they have LESS to invest.

With whole life insurance, the payments will stay the same for the entire period. Not a bad deal for youth as it keeps the cost of life insurance low, and protects their "insurability" in the future.

Good luck and I hope this helps.

Answer 3

A permanent policy sometimes makes sense if the need you are insuring will last beyond the available term periods.

Answer 4

buting whole life insurance is just a waste of money.  it's essentially just a savings account.  you are right--invest the $$ and go term life. i know some people buy whole life and i just think it is because they don't really pay any attention to what they are buying.  they just think--life insurance.  i'm sure in my younger days i didn't know there was a difference. to bad "stupid" isn't illegal! LOL!

Answer 5

OK the who/why question:

1. People with legitimate insurance needs for their entire life.

2. People who have health issues buying guarantee issue polices.

3. Kids policies (not many compelling reasons to buy these).

4. People who have so much money, they can't fit it anywhere else.  

5. Business use polices.

For 90-95% of the polulation, term is the best fit.

Answer 6

I opted not to buy any life insurance. With longer life expectancies many people outlive the terms of the insurance in the one case  and can "make" more money if they invest it themselves.    I simply took the money I would have spent and invested it. Over time it has grown to much more than anything else I might have done.  One just needs to have the self discipline to save and invest wisely...conservatively.... so the money will be there when needed.   Good luck with your decision.

Answer 7

Same thing as a savings account, except that is pays off if you die early.  Basically, you're betting that you'll die before the actuary thinks you will.  If you die early, you win.  Some victory.