What are some pros and cons of whole life insurance? (2024)

FAQs

What is the downside to whole life insurance? ›

Cons of Whole Life Insurance

Whole life is more expensive than term life, and you will receive a lower death benefit than you could get with the same amount of money with a term policy.

Whole life insurance is designed to last your entire life. It will never expire as long as you continue to pay premiums, which will never change. In addition to a guaranteed death benefit for your beneficiaries, it can allow you to build cash value, which accrues interest over time.

One of the most notable risks of Whole Life Insurance is its cost. The premiums associated with whole-life policies tend to be significantly higher compared to those of Term Life Insurance. The reason behind this lies in the policy's structure, which combines a death benefit with savings or cash value accumulation.

30 to 60 years old

Whole life or universal life policies, if you can afford permanent coverage, can provide more financial security for your loved ones. But if you have a lot of debt, you may opt for a high-value term life insurance policy until the debt is paid down.

Can You Cash Out a Life Insurance Policy? With a cash value life insurance policy, like whole life or universal life insurance, you can access the cash value. One of the ways to do that is to cash out or surrender the policy. If you choose to cash out your policy, you'll receive the cash value minus any surrender fees.

A whole life insurance policy will begin building cash value as soon as you pay your first premium, and it will continue building throughout the life of the policy as long as there are funds in the account.

You can pay whole life insurance policies forever or over 10 to 20 years — it's your choice. But your monthly premiums will increase dramatically should you choose the latter option. The payment schedule you choose greatly depends on your affordability.

If you're on a budget and just want to provide coverage for your family, term life plans are often the most cost-effective option. On the other hand, if you're looking for lifelong protection with more investment potential, then whole life insurance may be a better choice.

Self-funding: The policy can pay for itself over time by applying dividends to pay premiums. Disability protection: A whole life policy can continue to be funded even if you are disabled.

A financial advisor who makes a living through commissions has a strong financial incentive to include life insurance, as some insurance companies pay rather well for selling their products.

Why does Dave Ramsey not recommend whole life insurance? ›

For every $100 you invest in whole life insurance, the first $5 goes to purchasing the insurance itself; the other $95 goes to the cash value buildup from your investment, Ramsey says. But for about the first three years, your money goes to fees alone. Someone is making out, and it's not your beneficiary.

Wealthy individuals with a net worth over $1 million can use life insurance to provide for their loved ones in the event of their death, as an investment vehicle, or as protection against estate taxes.

A more complex product than term life insurance. Higher premiums than term life insurance. Could be costly if coverage lapses early.

The average cost of a $500,000 whole life insurance policy for a healthy 30-year-old is $451 per month as of May 2024. Your personal rates depend on your age, gender, health, and hobbies, as well as how much coverage you need.

A whole life policy has a tax-deferred cash value that grows at a guaranteed rate every year ³. Your death benefit is guaranteed.

A guaranteed death benefit: The level of the death benefit (the amount paid to your beneficiaries) is guaranteed never to decrease. A guaranteed cash value: A cash value that is guaranteed to grow at a set rate each year until it is equal to the face amount of the policy at a specified age, typically age 100 or 121.

Some of the top reasons for a claim to be denied include fraud, high-risk activities, suicide clauses, policy expiration and the possibility of beneficiaries' involvement in the insured's death.

Term life is often a better choice for parents with young children and a mortgage, as their family may be dependent on their income to meet basic expenses. Whole life is often more expensive than term life, but the coverage is permanent as long as you make your payments.