When it comes to selecting the right type of life insurance, the choices generally start with whether to go with term or whole insurance. While whole life insurance has definite advantages that millions of people have benefited from over the years, there are times in which whole life insurance is a bad investment.
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In fact, despite offering certain advantages for some, overall having whole life insurance is not a good investment when it comes to how much money it earns compared to other forms of investment. Plus, there are other concerns about the true value of investing in this type of life insurance policy.
Perhaps the biggest issue that demonstrates whole life insurance a waster of money is that it takes a considerable amount of time for the profits of your investment to show up. Over the many years that it will take for your life insurance policy to mature, you could have invested the same amount of money in a myriad of different investment options and received a better return in a far shorter amount of time.
An Undiversified Approach
Investing in whole life insurance is basically akin to putting all of your eggs in a single basket. This means that if anything should happen to the life insurance company, your policy will disappear along with any profits that you might have made over the course of its lifetime. As an investment strategy, this is not a good use of your money as compared to other types of investing opportunities that offer more diversity with better results.
The older you are, the less likely a whole life insurance policy will work for you. This is because of the time it takes to build up the interest which can then be cashed out when the policy matures. If you have reached middle age and are now looking towards retirement, there are better investment options out there for you.
In fact, most investment opportunities such as stocks or bonds do not offer guarantees of returns. Even though life insurance seems to be a very mild risk, it is still present which means that you could wind up losing money in the long run when your policy does not provide the interest levels that were seemingly promised. You should compare the guaranteed interest levels with a CD which offers a higher rate of return that is backed by the FDIC.
Low Interest Rate
When you consider that the common interest rates on whole life insurance policies are often less than 4%, this means that you may be losing money as compared to going with a more traditional investment. There are many other types of safe investments that pay more than what a whole life insurance policy can deliver and with safer, guaranteed rates. In the long run, you are much better served by looking for investment opportunities that offer higher returns than what permanent life insurance can offer.
Basically, most people are far better off paying for term life insurance which is far cheaper and investing the rest in better investment opportunities than what whole life can offer.