Cheap Whole Life Insurance: Does It Exist?

Cheap whole life insurance isn’t something that most folks on a tight budget usually look for.

Why? Because term life insurance is significantly cheaper than whole almost 100% of the time.

However, if you’re determined to get cheap whole life insurance quotes, then you should learn as much as you can about it so that you choose the best policy for you within your budget. I’ll also explain a few ways that you can save money on your policy if you do decide to go with whole.

What Is It?

Cheap Whole Life InsuranceWhole life is a life insurance and investment one-two punch. While term only covers you when you pass on, whole life insurance takes some of your monthly premium and automatically invests it in assets. The typical asset class found in whole life insurance policies are relatively low-risk securities and government bonds. It’s very rare for a whole policy to put your money behind speculative blue chips or risky angel investments. However, like any investment, there is a risk of losing your money in a whole life insurance policy.

And because whole life invests some of your monthly payments and covers you with a thorough life insurance policy, it’s going to cost much more than cheap term life insurance. This combination may not appeal to everyone, and it also might not be what you need as an investment.

On the plus side, this extra money isn’t lining the pockets of your insurance company –it’s going towards your retirement plan. In that way, the money you put into a whole life insurance policy is an investment in your future. Also, because the policy becomes a real asset, you can use it as collateral for a loan or mortgage. Finally, your premiums are usually “locked in” over the course of your policy, which makes whole them similar to term.

Issues With Cheap Whole Life Insurance

Unfortunately, these are the only positive things most investment experts have to say about whole life insurance. Here are some of the issues with it:

  • Little Control: With the advent of online investing, an average Joe has the same tools that available to him as full-time stock traders. With this knowledge, some amateur investors can even outperform professionals (although that is somewhat rare). With whole life you’re basically handing over the control of your portfolio to your insurance company, who may or may not know what they’re doing. And if you like having your hand on the dial, owning a retirement plan controlled by a stranger may make you a bit uncomfortable. This is understandable considering your retirement nest egg is at stake. Also, a whole life policy is meant to give you the most benefit when it’s in place for 20 years or more. If you don’t need coverage for this long, or don’t plan to use it as a savings vehicle, you’re simply not going to reap the benefits of a whole life policy over the long run.
  • Fees and Commissions: In general, you want your fees to be as low as possible so you can get the most of your positive returns. Low commissions are one reason that more and more people are turning away from expensive mutual funds and towards exchange traded funds. Being fee-conscious is very important as an investor as the returns on most retirement plans average out to about 8% per year. If you can decrease your fee from 2.3% to 1.3%,  you have just increased your return by 12% compared to a higher-fee plan. And when it comes to fees, whole life has some of the highest in the investment world. Oftentimes the plan takes nearly all of your return in the first and/or second year…and lops off 3% of your dividends over the life of your policy. This is significantly more expensive than most other retirement plans.
  • Difficult to Monitor: As already stated, with nearly all retirement plans shifting online, you can usually track how your investments are doing whenever you like. Unfortunately, this isn’t the case with whole life, even if you go with a trusted company like AARP life insurance. That’s because your investments are now married with your life insurance –making it difficult to track performance and make changes as needed. If you determine that you want a whole life policy, you’ll want to find an insurer that has good customer service so that you can call in and ask questions about how your investments are performing.

How To Get Cheap Whole Life Insurance Rates

If you’ve read the issues with whole life and still want to pull the trigger, here are some ways to get find an affordable whole life insurance policy:

Get Tough On Fees: In terms of your expenses, commissions and fees are second only to your monthly payments. And because fees tend to be quite high for most whole life insurance policies, it’s critical that you find the lowest fees possible. This may mean tough negotiating or playing two insurance companies against one another. It may seem a bit mean, but it’s  just the name of the game with cheap life insurance!

Know Your Investments: Although you may not be a Wall Street trader, you should still have a basic understanding of what the investment portion of your policy is going to look like. Don’t be afraid to ask lots of questions about where your money is going and how much of your premium goes towards investing and how much towards your actual life insurance coverage.

Don’t Be Too Cheap: When shopping for any life insurance plan, it helps to look beyond price. Remember: you’re looking to your whole life insurance policy to be your retirement plan and safety net rolled into one. With such important jobs you can’t put that kind of responsibility into a dirt cheap policy. Even if it costs a bit more it’s usually wise to stick with larger and more established companies as they tend to have the experience to do what’s right.

As stated several times (and repeated my most investment experts), term life insurance is usually the better option for families on tight budgets. However, if you work to get the lowest possible fees, you can find a cheap whole life insurance policy that works for you.

References:

Cheap Whole Life Insurance Information From Cornell

Whole Life vs. Term via BGSU.edu

NY.gov’s Take on Whole Life

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