A whole life insurance policy is a type of permanent life insurance that lasts until your death, and as you pay your monthly premium, the policy builds up a cash value. While whole life insurance has its advantages, it also has some disadvantages that you should consider.
| Disadvantages | Explanation |
|---|---|
| Higher premiums | Monthly premiums for whole life insurance cost more than term policies, and the accumulation of a cash value contributes to the higher price. |
| Smaller death benefit | You may be unable to afford a large enough death benefit to provide full financial protection for your family with a whole life policy. |
| Low interest rates | You receive interest on the cash value of your account, which is usually 1% to 4%, and when inflation levels rise, the amount of interest that you earn may be offset by rapid increases in the cost of living. |
| Limited investment options | With a traditional whole life insurance policy, the insurance company determines how to invest the cash value portion of your policy, and you may be able to earn a higher rate of return investing the amount added to the cash value elsewhere. |
| Locked-in death benefit | Whole life policies lock you into a fixed death benefit that may become too small or large over time. |
Despite these disadvantages, whole life insurance has its advantages. For example, once a policy is in place, it remains in effect unless you stop paying your premiums or cancel the policy. In addition, you won’t have to worry about completing another health questionnaire or undergoing a physical again. The interest that you earn on the cash value of a life insurance policy is tax-deferred, and you can withdraw from the cash value of your account if you need to pay for a major expense or supplement your income.
If you’re considering purchasing life insurance, it’s important to weigh the pros and cons of each type of policy and find one that meets your needs. You can get help calculating your life insurance needs and compare plans that are available where you live by comparing life insurance plans online or requesting a free plan comparison and chatting with a licensed insurance agent who can help you compare plans.
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Article Sources
- NerdWallet. What Are The Disadvantages Of Whole Life Insurance?
- The Guardian Life Insurance Company of America. What Are The Pros And Cons Of Whole Life Insurance?
- Ramsey Solutions. Term Vs Whole Life Insurance: Pros And Cons
- Forbes. Whole Life Insurance: Pros And Cons
- Investopedia. Whole Life Insurance Pros And Cons