Why whole life insurance might make sense if you’re struggling to save


Image source: Getty Images

Despite the added expense, whole life insurance has its benefits.

Key points

  • Whole life insurance provides coverage that does not run out.
  • It also accumulates cash value that could work to your advantage.

Buying life insurance is an important step to take if you have people in your life who depend on you financially or who could be financially harmed if something were to happen to you. Now, when it comes to buying life insurance, you have options. You can buy a term life insurance policy, which will cover you for a predefined period of time, or you can buy whole life insurance, which will cover you for as long as you live.

The downside of buying whole life insurance is that it can be extremely expensive, much more expensive than a term life insurance policy. Even so, if you’re someone who struggles to save money, you might want to opt for a whole life insurance policy for a great reason.

When you are actually forced to save

Many people don’t need forever life insurance, so a more cost-effective term life insurance policy makes sense. But whole life insurance doesn’t just cover you forever – your policy also accumulates cash value. And it’s money that you can either cash out at a given time or borrow when the need arises.

In fact, it’s easy to think of whole life insurance as a type of forced savings. That’s because the money you put into your premiums is money you don’t spend anywhere else.

If these bonuses didn’t exist, maybe you would like spend that money without getting anything in return. If a person really cannot motivate themselves to save elsewhere, such as in a regular savings account, buying whole life insurance may be a good choice, especially since it also offers coverage that does not does not run out like term life insurance.

That said, there is a downside to using whole life insurance as a means of saving. For one thing, you might end up having to surrender your life insurance policy if you reach a point where you can no longer afford the cost of your premiums. And if you surrender your policy early on, its cash value could end up being quite low.

Additionally, many whole life insurance policies come with surrender charges for policies that are discontinued early – often within 10 to 15 years. These fees can eat away at the savings you’ve accumulated through the cash value of your policy.

A better way to save

It’s important to have cash on hand for emergencies, but a whole life insurance policy really isn’t your best bet in this regard. A more ideal route is to put some money aside in a regular savings account.

That said, if you’re looking to build longer-term savings, a whole life insurance policy may be a reasonable way to go about it if you really believe it’s the only way to force yourself to save. But before you make that choice, you might want to look at other options that work much like forced savings.

If your company offers a 401(k) plan, for example, you can enroll and have money deducted from your paychecks upfront for retirement savings purposes. Granted, no one is forcing you to make these contributions, but they will also be taken out of your income before you have a chance to spend that money.

You can also find an IRA with an automatic transfer feature that achieves the same effect. That way, you get ongoing savings without having to lock yourself into expensive premiums that could, at some point, cause you to give up on your policy altogether.

Life insurance protection for you and your family

While many varieties of insurance coverage are designed to help protect a person’s family and assets, life insurance is an essential type of protection. The right life insurance can help protect the people who depend on you most if you die. Choosing the right life insurance policy is essential to ensure adequate protection for your loved ones. We’ve sorted through the different options to bring you our picks for the best life insurance policies available today.


About Author

Comments are closed.