Insurance agents love to pitch whole life insurance.
This is sometimes a controversial topic, but the truth is that insurance agents make massive commissions on permanent life insurance when compared to term policies. Because of this, it’s not uncommon to see agents find creative ways to work permanent life insurance into a financial plan.
The truth is that most people simply don’t need permanent insurance, and are far better served with a term policy. Whole life insurance is costly, and offers very poor return potential. This post will cover what whole life insurance is, and why most people are better off with lower cost alternatives.
How Life Insurance Works
In order to understand whole life insurance, we really need to understand term life insurance first. With term life insurance policies, you’re paying an insurance company a monthly premium in exchange for old fashioned, plain vanilla insurance on your life. If you die while the policy is in force, the insurance company will pay your beneficiaries a death benefit.
Since it’s a term policy, it’s only good for a certain amount of time. Most term policies are written for 10, 20, or 30 years, and have level premiums throughout the life of the policy.
By and large, term policies are the best way to insure your life. They’re inexpensive and straightforward. Plus, the whole reason most people insure their lives is to protect against the chance that they die before becoming financially independent. Once they become financially independent there’s rarely a need for life insurance. You have enough assets to pay for your lifestyle, which can be distributed to your heirs after you go.