Buying life insurance wasn’t really a task that was on my radar until I had my kids. Sure, my husband and I shared a mortgage and other expenses. But the way I saw it, he was capable of fending for himself, so why buy a policy to protect him only? (Sorry, honey.)
But when kids came into the mix, my husband and I both got serious about applying for life insurance. And we’ve had a policy in place for many years now — a term life policy, that is.
When we were shopping around for life insurance, the advisor we worked with had walked us through our options and explained the difference between term life policies and whole life policies. But I knew going into it that whole life insurance wasn’t for me.
When life insurance costs a fortune
I’ll cut right to the chase. The reason I’d never buy whole life insurance is due to the exorbitant cost.
Policygenius says that a 30-year-old non-smoking male can expect to pay $26 per month, or $312 per year, for a 20-year term life insurance policy with a $500,000 benefit. Want to know what the same whole life policy might cost? Try $451 a month, or $5,412 per year.
Now I’ll admit that I don’t remember what I was quoted for whole life insurance back when I applied as opposed to the term life policy I wound up with. I just remember it being a lot more.
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To be fair, whole life insurance has a couple of benefits that term life insurance doesn’t. With a whole life policy, the person insured is covered forever. With term life insurance, as the name implies, coverage only lasts for a limited period of time.
Also, whole life insurance accumulates a cash value. This gives those with that type of insurance the option to eventually take the money and run, or borrow against a policy. Term life insurance doesn’t accrue a cash value. Someone with a 30-year term policy who doesn’t pass away during that time gets no money, nor do their beneficiaries (though that person gets the benefit of living, which isn’t too shabby).
But while I can recognize the upside of whole life insurance, no part of me can justify the cost. And though some people say that whole life insurance can serve as a backup form of savings, I’d rather use other tactics to build savings myself.
The appeal just isn’t there
The idea of getting some sort of payday from a life insurance policy no matter what is a nice prospect. And whole life insurance allows for that. But the way I see it, rather than be locked into expensive premiums for whole life insurance, I can instead take the money I’m not spending and invest it in stocks or other assets.
Let’s say I’m saving $400 a month by sticking with term life insurance (in reality, I’m probably saving more, but let’s use that number anyway). If I were to invest $400 a month in a stock portfolio over 30 years, all the while generating an average annual 10% return, which is a bit below the stock market’s average, I’d end up with about $790,000.
So in that case, why should I pay a life insurance company more money when I can take savings matters into my own hands? And who knows? If I’m good at picking stocks, I might do even better than a 10% return in my portfolio.
Plus, this way, if I run into a period where I can’t swing the extra $400 a month to invest, it’s no big deal. With a whole life policy, not making payments for several months could mean losing coverage. It’s a risk I don’t want to take.
I’m not going to say that whole life insurance is a disastrous idea for everyone. And those who aren’t sure about it should talk to a financial advisor and see what they say. But I know that whole life insurance isn’t the right option for me.
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