by Rich Wesselt, Founder and Principal, Wesselt Capital Group
Anyone who knows me knows how I feel about choosing between term life insurance and whole life insurance policies. I consider whole life insurance to be one of the best financial products ever developed and one that should be part of everyone’s financial plan.
Why? Savings and protection are two pillars of a sounds financial plan—and a whole life insurance policy provides both.
Let me explain…
Term life insurance is the vehicle of choice for many, because it is less expensive and provides a large amount of coverage over a set time period, which may be 10, 20, or 30 years. However, as the policyholder ages, the policy becomes more expensive, and at the end of that term, or at a designated age, the policy expires. The policyholder must undergo medical tests and purchase a new policy, which may be much more expensive.
The benefits of whole life benefits
A good alternative is whole life insurance. With this policy, a person pays a level contribution for the life of the policy and it does not expire. The death benefit is permanent and there is never a need for additional medical tests.
While the initial outlay for whole life may be more than for a term policy, the premium paid becomes a savings and investment vehicle. It earns cash value in the insurance company’s general portfolio and becomes another form of forced disciplined savings.
Over the course of my 30-year career, I have seen these portfolios typically offer bond-like yields of 3 to 5 percent (based on the long-term track record of the life insurance industry) and become part of the overall asset allocation of a well-diversified portfolio. For example, an individual may choose to invest their 401(k) assets more aggressively in equity funds because they are balanced by the more conservative, bond-like yield of the whole life insurance policy assets.
Give yourself some financial flexibility
Whole life policies also have additional benefits that add financial flexibility. The whole life policyholder can borrow against the cash value of the policy and set their own payback schedule, rather than relying on high-interest credit cards or other loans.
For example, if a policy has a cash value of $20,000, the policyholder could borrow against it with a $10,000 loan. In this case, the $20,000 would still be earning inside the policy, while the $10,000 is paid back over time without changing the forward momentum on the existing cash value.
In addition to this benefit, the value of the whole life insurance policy can also be used as collateral when approaching a bank for a loan.
Standing the test of time
Many young people don’t know a lot about whole life insurance—but these policies should not be such a secret. In fact, they have been around for over a hundred years and stood the test of time. Even if someone has a term life insurance policy, a whole life policy should be considered as a component of their overall financial plan.
Have questions about whole or term life insurance? Just want to discuss? Give our office a call at 610-650-1840.
