Is Whole Life Insurance a Good Investment?

Thang Truong
Thang Truong
Updated on:

Whole life insurance is a common product you see listed with nearly every major insurance company. The problem? It’s an older product that tends to be more expensive, inflexible, and carry fewer benefits than newer products like indexed universal life insurance, guaranteed universal life insurance, or variable universal life insurance. Below we’ll answer the question “Is whole life insurance a good investment?” through a few case studies. The short answer is no, whole life insurance, except for final expenses, is never a good investment, compared to other universal life insurance product alternatives.    

To start, most people get traditional whole life insurance because either i.) they want to have guaranteed and permanent coverage (death benefits) for their loved ones when they pass away; or ii.) they want to grow cash value account in the policy and have access to it when they need it. In the 4 cases below, we will illustrate that for either reason, whole life insurance is not a good investment. They will be better off with other universal life insurance product alternatives.

>>MORE: Case Studies of Universal Life Insurance

Case #1: Whole Life Offers Same Guaranteed and Permanent Death Benefit for Much Higher Premiums

Many people choose whole life because one of the primary benefits is that it’s a permanent policy that allows you to leave a substantial amount of money to your loved ones after you pass away. However, we proved in this case study that you can get this same benefit with a guaranteed universal life insurance policy for cheaper.    

A whole life policy had a $7,083 annual premium and gave a $300,000 death benefit. For that same $300,000 death benefit, the annual premium is $2,805 in the guaranteed universal life insurance policy. That’s a significant saving. 

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Case #2: Same Premiums for a More Flexible and Larger Cash Value from Indexed Universal Life Policy

Moon is a 37-year-old female manicurist with an income of $40,000 to $50,000 per year. She is in excellent health.  

She wants to invest in a permanent life insurance policy from which she can withdraw cash to supplement her retirement income when she retires at 60 years old. She has owned a whole life policy for four years. 

Her whole life policy is by MassMutual. She pays $220 a month for 27 years. And based on the policy’s illustration, she will be able to withdraw $6,430 a year, tax free, for 30 years, from 60 to 89 years old.

After shopping with 30+ carriers and their 90+ permanent products, we advised her to switch to an indexed universal life insurance policy by Allianz Life (Life Pro+ Advantage product). She will still pay $220 a month for 23 years only. 

She will be able to withdraw up to $13,500 a year, tax free, for 30 years (from 60 to 89 years old) with this indexed universal life policy, which is 210% more than the amount from whole life policy.

In this case, it is evident that whole life is not a good investment for supplemental retirement income savings.

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>>MORE: Is Whole Life Insurance Good for Retirement Savings?

Case #3: Whole Life Still Not a Good Investment After Having the Policy of a While

So is whole life insurance a good investment? Even if you are older and have had the policy for a while? Not necessarily. In this case study, we looked at the difference between a whole life policy and a variable universal life policy.

The original whole life policy required $2,200 in premiums annually for the rest of life for a guaranteed permanent death benefit of $250,000. The insured has had the whole life policy for 40 years and built up a cash value account of $172,000. He is now 73 years old.

After comparing quotes of 90+ permanent products from 30+ insurance companies, we recommended the insured to replace his whole life policy with a variable universal insurance policy. This is a one single premium policy, which means he pays $172,000 in the first year (which he transfers from the whole life policy), and annual premiums go to zero permanently. And the variable account still has a guaranteed death benefit of $309,000 up to the age of 100, which is 23.6% more than the death benefit from the original whole life policy.   

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Case #4: Whole Life Does Not Offer Optimal Investment Benefits

Many people like the idea of building cash value through investments and the benefits of those investments being tax-free. However, whole life has a small cash value component that grows on a fixed schedule as determined by the insurance company.  

Meanwhile, indexed universal life insurance offers a greater potential for cash growth, since growth is tied into how a certain market index performs. There are also often investment floors, so you cannot lose money.  

In this case study here, we compared a MassMutual Whole Life policy to an Allianz Life (Pro+ Advantage) indexed universal life policy. The major takeaway is that the non-guaranteed cash value at age 60 is $161,516 for the indexed policy and $112,739 for the whole life policy, or a difference of $48,777.  

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Is Whole Life Insurance a Good Investment? Final Thoughts

Overall, newer and more comprehensive products make more sense than whole life. You can have easier access to a larger cash value with other plans over whole life. With whole life, you often get the same death benefit with higher premiums. And with other plans, you might not have to pay premiums at all.    

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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