The guaranteed savings aspect is particularly appealing to people who might not have as much discipline to save money themselves, says Jason Hamilton, a California-based financial planner. High-net-worth individuals looking for a plan to save money for retirement could also benefit from buying a term life insurance policy. If you want a whole life policy, for this reason, you also might be able to take advantage of the cash value built into your policy to supplement your retirement. A portion of the premiums on your whole life policy goes into a tax-deferred account, which builds cash value over time. With any cash-value life insurance policy, you may be able to borrow against it or possibly take out cash when your account grows.
Premiums are generally higher with this type of policy, but you will accrue a cash value into the account, which works similarly to a savings account. With certain types of Universal Life Insurance, you can adjust the death benefit and lower the premiums, provided that the cash value account has enough money to cover policy costs. Premiums may be significantly higher than those for the same amount of term life insurance due to the cash value features and the policy's expenses. As you get older and can afford more insurance premiums, a whole life policy allows you to buy higher amounts of coverage at a fixed rate that does not change.
Many people buy less expensive term policies or guaranteed-issue universal policies, and they just waste the money they saved not buying a whole life insurance policy. We would not recommend buying whole life insurance as an investment if you are older since you might not live long enough to get good returns, and would save money by purchasing guaranteed universal policies. Because guaranteed universal life insurance policies provide permanent coverage, they are still far more expensive than term life insurance (easily 3 or 4 times more expensive), but you will save money because there is virtually no investment component. Whole life is the most expensive kind of permanent coverage, but the reason why people opt for whole life is usually the money-back benefits that accrue over a full policy.
Term life is designed to cover financial losses related to death, with the idea being that a person saves through other investments so they will have sufficient assets to pay the living expenses of their dependents if they died after their insurance policy ended. Permanent life insurance policies contain a death benefit (or a face value), which is an amount paid when someone dies, and a cash value, which grows over time on a tax-deferred basis, like retirement savings plans or college tuition. We suggest avoiding survival life policies entirely, as a survival life policy, is also a type of cash-value the policy pays absolutely nothing in benefits to either individual until both spouses have died. Instead, max out other savings options like IRAs and 401(k)s first. If you are a high-income earner, have maxed out contributions to retirement accounts, and want a side account to save money tax-free, a cash-value life insurance policy may be a good match.
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