Why Whole Life Insurance Is Bad

In the past, whole life insurance offered the insurance coverage most people wanted. As investment strategies and financial instruments have changed, whole life policies may no longer be appealing, as other ways of investing have become more profitable.

Whole Life Insurance Costs More

1. Whole life insurance consists of two parts; the insurance policy and an investment account. Each premium payment therefor includes the cost of the insurance and money for the investment account.

Mystery Money

2. A portion of premium payments for whole life policies goes toward paying commissions, while another portion goes toward the investment account. Insurance companies do not disclose how the money is distributed.

Investment Assumptions

3. Agents and brokers can only predict what the investment component in a policy will yield. Predictions offer no guarantee and agents may make high predictions in order to get more business.

Higher Investment Yields

4. Although whole life insurance offers an investment component, money spent on the policy can yield a higher return if invested elsewhere. Financial instruments such as mutual funds often offer a high interest rate, which could create more profit than the money invested in a whole life policy.

Length of Coverage

5. Whole life policies provide life insurance coverage until you die. Although this type of policy offers attractive coverage to many, as income grows and other investments accumulate, life insurance coverage often becomes unnecessary.