Whole Life Cash Value Lie!

I’ve made no secret of my disdain for whole life insurance and the whole cash value is more important than adequate insurance mentality. I was cruising financial news today and saw an article on life insurance and decided to check it out.

The article did provide some good tips concerning conversion and accelerated death benefits, but being the whole life unthusiast that I am, I was drawn to a statement in Point #3. The sentence at the end of the first paragraph said, “Yet cash value’s purpose is to come to the rescue in these moments.” Excuse me? Cash value is the internal support to keep the policy in force. That is its’ purpose.

Can you borrow against it in times of economic turmoil or need such as this recession? Sure you can. Would you be in the same economic position if you hadn’t paid too much for life insurance for the past 10 or 15 years (which is how long it takes to build enough cash value to even consider it as a source of rescue). There is a good chance that you might not be looking for a bailout if you hadn’t blown the big bucks for too little life insurance to start with.

The problem, as I see it, with whole life insurance is that it either has to be purchased as a savings plan or as a life insurance plan and it falls short of being impressive in either category. As a life insurance plan, in comparison to other guaranteed permanent policies such as a universal life policy with a no lapse guarantee, the cost per thousand is just too high. That leaves a client with the decision of going over budget or under insuring. Both of those issues are what leads to the nearly 20% lapse rate for whole life in the first three years. Definite buyer’s remorse.

Purchased as a savings plan it simply fails to impress anyone that wants to stack it up against a real long term investment. It’s slow out of the chute and because of the charges before interest, it’s slow to grow. The fact that it grows tax free is often hung out there as something unique, but let’s be honest. There is anything new or unique about a tax free investment that can be borrowed against.

And one last thing. The borrowing thing. “Cash value’s purpose is to come to the rescue”. Buyer’s remorse is the first and quickest reason for whole life insurance lapsing. The second is borrowing from the cash value. There is a point where that good idea comes back to bite you in the butt.

Bottom line. For today I won’t say whole life is the worst life insurance you can consider owning. I’ll just leave it up to the discerning buyer. Please discern before you buy.