The Advantages of Whole Life Insurance Debunked!

Heavenly | Oct 7, 2010 |

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I believe many insurance agents are sincere. They sincerely believe in their products. Many other agents actually buy term insurance for themselves, but sell the more expensive whole life insurance plans to their clients. In a common scenario, each member of a low income family has a whole life insurance plan, including the children. I wonder if the agent made the family think that death is always near, or the end of the world is going happen tomorrow.

The whole life insurance plan gives a much higher commission fee to the agent than term life insurance. For as long as the clients stay in their policies, whole life insurance will offer a recurring, passive income to the agent. Financial incentives do play a key role in the popularity of permanent life insurance products.

So what are the common false advantages of whole life insurance? They said the payout rate is high, that the cash value in the policy grows tax-free, that it forces you to save, and you insure yourself and invest at the same time. Every single advantage of the whole life insurance is almost all based on its infamous cash value. All the clients that had such plans found out the cash value did not belong to them when it was too late. They had paid for the plans for several decades already.

Some clients don't even remember how much they are paying each month, because they have hidden their insurance contracts in God knows where, and have never reviewed them, but we can't blame them because an insurance contract is usually very complicated. The industry is heavily regulated by government, but to their advantage. As a result of over regulating, the real competition in the industry is very low, because potential insurance businesses with a more efficient model couldn't enter the field to compete with the big boys. The lack of competition allows the return rates of the cash value to stay very low, compared with similar investment vehicles in the market.

In fact, term insurance is the best product to insure your income. The price difference is huge. You will save hundreds to thousands of dollars each month on the premium. Several thousands of dollars is enough for you to start a small business or invest in a good stock if you have the knowledge and skill. If you use dollar cost averaging, and invest the difference you save each month by using term insurance instead of whole life plans, you will save up a sizable nest egg for retirement, even if you have little skill or knowledge.

There are retirement plans in Canada or the US for you to grow your retirement fund tax-deferred. You simply pick your favorite investment vehicles such as mutual funds, index funds, or stocks, and register them with the government. Each province or state has different rules, and you can consult with experts such as your accountant. The investment firms will be more than happy to help you do it. The rates they offer are usually better than insurance cash values.