Whole life insurance is not just permanent and guaranteed protection for your family, but it is a permission slip to spend down your assets. If we have a mortgage the banks require us to transfer liability to insurance companies in the form of homeowners insurance. When our homes are paid off we don’t simply stop paying homeowners insurance and place 500,000 dollars in a safety deposit box. This is because if we do that the money is locked away and we can’t access it. Thus, we keep paying 2,000 dollars to insure our home so that we can enjoy that money.
We work throughout life and continue to contribute to our retirement plans in hopes of reaching an amount of money that we don’t outlive. Of course this is all dependent on our longevity and the volatility of the market. Is there a way we can insure our 401k if we run out? If there was would you want to do it? Whole life insurance gives us the ability to turn protection into an asset in retirement by spending down the death benefit via the cash value build up within the policy. Whole life is the only asset that offers guaranteed protection from an early demise, (a lot of protection in comparison per dollar of premium) and a growing asset that builds on our balance sheet.
Cost- In terms of cost the most expensive insurance is term insurance. This is because term insurance only has a 2% chance of paying out. At the end of the term premiums skyrocket and we are forced to purchase a new contract if we are insurable. All while the premiums, time value of money on those premiums, and the death benefit are gone forever.
Whole life insurance has a zero percent failure rate. This is because we are either going to die or we are going to live long enough to where we turn our whole life contracts into a spend down asset, taking withdrawals tax free. Because of this Whole life is a safe strategy that can’t lose. The insurance company determines how much you pay for term insurance contracts. However, the IRS determines how much one can put into a whole life policy without it becoming an endowment. This law that was established in 1987 was because the IRS realized that people where hoarding their money in whole life contracts tax deffered and taking withdrawals tax free. If Whole Life wasn’t a good investment product than the Internal Revenue Service wouldn’t have made these stipulations on maximum contributions.
The point is, whole life insurance gives us permission to spend our assets down the way we want to without having to self-insure and out predict the market. In return you protect your assets, your family, your retirement, and ultimately your legacy.