Whole life insurance is permanent life insurance that provides protection for your entire lifetime and remains in place as long as premiums are paid. Therefore, it is NOT an investment like the traditional stocks and bonds are, more like a liquid saving vehicle that gets a more guaranteed return. So should you put your money on it?
Therefore, are two other key benefits and they are:
1. Death benefit paid to the beneficiary upon the death of the insured
2. Cash value is accumulated over the term of the insurance, can be used as savings or investments which can be used upon retirement or borrowed against if you need the money while you are alive.
In Kenya, most insurance companies offer this cover, including but not limited to UAP Old Mutual, Liberty Life Assurance, and Jubilee Insurance.
Whole Life Insurance Pros & Cons
There are several benefits of a whole life insurance policy include:
- Fixed premiums during the time you are covered unless you choose otherwise
- Premium money goes towards building a cash value that you can borrow against and withdraw before death
- Provide a modest investment return
- Tax-deferred growth opportunity on savings
- Provides life-long cover with no future medical exams that may result in higher premiums.
Some cons include:
- Though a modest return is guaranteed, it is mediocre at best.
- Premiums of a whole life can be quite expensive.
- Policies are quite complicated and difficult to understand.
Learn More: 5 Ways to Use Your Life Insurance Benefits
Whole Life Insurance As An Investment
Is whole life insurance a good investment? No. Whole life insurance isn’t the best choice as an investment to build wealth with for the following reasons:
Low Rate of Return
The rate of return on whole life insurance policies is quite low compared to other investments, even when you factor in tax savings at the end of the year. When it comes to whole life insurance, it is best for building and protection, not an investment tool only.
Hidden Costs
Whole life insurance has hidden fees, such as higher commissions to brokers, and may also include fees for the management of the investment. It is normal for investments to have fees attached i.e. management fees, but make sure that you iron out these details with your financial advisor before taking on life insurance. Remember, this is a life long product and as such, it’s your life you are investing in, protection as well as your family’s security too.
Volatility
Whole life insurance, at least the investment portion of it, isn’t spared from fluctuating market prices. Being well informed will always protect you. A good financial advisor will be more than happy to iron out any concerns you may have and provide adequate guidance. Take on whole life insurance, primarily for protection and investment as a secondary benefit. If you can, consider purchasing long-term life insurance with a fixed annual rate of return for both building and protection benefits. For savings only on life insurance, reviewing other strategies that will best benefit you before settling on whole life insurance as the choice.
Learn More: 3 Paths Of Wealth Accumulation
When Is An Excellent Choice
Here are five instances when a whole life insurance policy is an excellent choice as a way to not only protect but also build wealth:
- Young Age. A great option when you are young and do not yet have the means to save money on your own. In that, the policy forces you to save money on a regular basis.
- Securing Loans. It can be used as a financial strategy to secure loans or even mortgages in the future if you one day want to purchase a home.
- You Are Healthy Now. If you are healthy now, it is an excellent way to secure a policy that will last your entire life.
- Shelter Wealth. Life insurance can be a great way to invest money tax-free of the interest and dividends that build off the savings. Thus, it is quite advantageous for estate planning for certain high net-worth individuals looking to minimize estate taxes.
- Death Benefits. If you want to leave a large sum of money/legacy death benefit to your family or some else when you die, then whole life is a great way to finance this.
Learn More: How Much Life Insurance Do You Actually Need?
Key Takeaways
Next time you go shopping for a life insurance product, keep these points in mind when making your final decision if whole life insurance is the best option for your needs:
a. Whole life insurance provides death benefits, tax benefits and cash value but costs more than other term life insurance options.
b. Is a safer permanent life insurance choice than other types since you know what to expect in terms of interest, premiums and death benefits.
c. A great financial strategy to maximize benefits when taken on while you are young.
d. Be reasonable and ensure that you can pay the premiums – whole life isn’t beneficial if you skip payments or lose everything when you cancel later.
e. Purchase life insurance only from companies with a strong rating. Remember it’s a life long investment and thus company stability is essential.
Happy Investing!
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