Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. With traditional term insurance, the premium payment amount stays the same for the coverage period you select. After that period, policies may offer continued coverage, usually at a substantially higher premium payment rate. Term life insurance is generally less expensive than permanent life insurance.
I imagine that any level of whole life insurance would require a significant percentage of your income just to pay the premiums, and while your intent is obviously incredibly good I hate to think about the struggle that could cause along the way. Even putting that premium into a savings account instead would put you in a much stronger financial position today, giving you more room to weather the ups and downs and provide a more stable life for both you and your son. Because remember that in order for your whole life insurance to last as long as you live, you need to be able to continue paying the premiums no matter what. If a temporary setback makes that impossible, you could be left without savings and without a policy to pass on, whereas money in the bank would help you get through it. I honestly think that having that savings, particularly when your income is low, is much more valuable than having a whole life insurance policy.
Several comments……first, I didn’t read all the posts so I apologize if this has already been discussed/addressed………you mentioned loans on a whole life policy is the means by which “tax free” income is distributed and that makes for the equivalent of double taxation, however the first monies coming out of a whole life policy would be your own contributions and therefore no taxation would be in effect as those monies, when contributed, had already been taxed…….the loan process would kick in when the policy detects taxable growth and would switch to loans instead of withdrawals………..also, let me just mention the insidious monster called “sequence of returns” and how it pertains to “returns” in the market……..returns in the market are reported by averages…….once you look at the “real rate of return” of a stock or mutual fund you might find the long term return of a whole life policy much more palatable……….example: what is the average rate of return in this example and real rate of return……..you have a $1,000,000 home and in the first year it goes down by 40%……….your home is worth $600,000…….the very next year your home goes up by 60%……..your home is now worth $960,000…….but what is going to be your reported average rate of return?……….10%, yet you are still under water; the “real rate of return is -4%…….this is a very eye opening expose on how the “market” makes things look…..it is the downs in the market that kill an investments return…….there are no downs in a whole life policy………..I hope this helps in perspective.
I think that post does a good job of showing how the illustrated (non-guaranteed) return from a whole life insurance policy is comparable to one of the most conservative types of traditional investments you can make IF you end up keeping the policy for 30 years. Of course, that conservative traditional investment doesn’t have most of the other downsides discussed here AND doesn’t require you to hold it for 30 years to see a reasonable return. And, of course, you are allowed to put your money into other, less conservative investments outside of a life insurance policy, some of which may even have special tax advantages (401(k), IRA, HSA, 529, etc.).

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*Payoff Protector is not an insurance product. Subject to the terms, conditions, and restrictions of the Payoff Protector provision in your State Farm Bank Promissory Note and Security Agreement. If your vehicle is determined to be a total loss before the loan is paid off, State Farm Bank will cancel the difference between the insurance payout and the unpaid principal balance due on the loan. Certain restrictions apply. For example, your loan must be in good standing.
And yes, it is nice for children who develop chronic illnesses to have some amount of life insurance, potentially. But is the amount you purchase going to be enough? Yes they will have that amount but in most cases if they want more their health will still cause it to either be more expensive or unobtainable. So it isn’t exactly guaranteed insurability for life for whatever needs they have. It’s mostly limited to the amount you purchased, which is probably helpful but also probably wouldn’t meet their full needs. And again I would argue that you could buy term to cover their needs for a number of years while additionally saving in other ways if you really want to give them money they can use in the event of a chronic illness. Having it in accessible accounts would actually give them more options in that situation rather than having to wait till death.

By clicking the "FINISH" button above and submitting your online term life insurance quote request to SelectQuote, you are agreeing by your electronic signature to give SelectQuote and Inside Response, Allied Insurance Partners and LiveOps, Inc., your prior express written consent and continuing established business relationship permission to call you at each cell and residential phone number you provided in your online quote request, and any other subscriber or user of these phone numbers, using an automatic dialing system and pre-recorded and artificial voice messages any time from and after your inquiry to SelectQuote for purposes of all federal and state telemarketing and Do-Not-Call laws and your prior affirmative written consent to email you at the email address(s) you provided in your online quote request, in each case to market our products and services to you and for all other purposes. Your consent is not required to get a quote or purchase anything from SelectQuote, and you may instead reach us by phone at 1-800-670-3213.
In his memoir “Am I Being Too Subtle?” Sam Zell, a billionaire investor and chairman of Equity International, writes, “I’m always on the lookout for anomalies or disruptions in an industry, in a market or in a particular company…. Any event or pattern out of the ordinary is like a beacon telling me some new interesting opportunity may be emerging.”

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My current blended Whole Life policy breaks even with premium paid in year 5, and together with my Indexed Universal Life policies, my permanent insurance policies constitute my entire fixed income allocation. No need for bonds, as these policies give me a decent long-term growth of between 4.5-6% that is virtually risk free, tax free and dummy proof…and provides a giant tax free death benefit upon my passing.
Also, we accept most cars and drivers. (Yes, that means you too!) We offer free auto insurance quotes for drivers that have had a history of driving violations or accidents (in most cases considered high-risk drivers), have let their insurance expire, or have less than perfect credit. We always offer the same flexible rate plans and outstanding customer service, regardless of your driving record.
And yes, it is nice for children who develop chronic illnesses to have some amount of life insurance, potentially. But is the amount you purchase going to be enough? Yes they will have that amount but in most cases if they want more their health will still cause it to either be more expensive or unobtainable. So it isn’t exactly guaranteed insurability for life for whatever needs they have. It’s mostly limited to the amount you purchased, which is probably helpful but also probably wouldn’t meet their full needs. And again I would argue that you could buy term to cover their needs for a number of years while additionally saving in other ways if you really want to give them money they can use in the event of a chronic illness. Having it in accessible accounts would actually give them more options in that situation rather than having to wait till death.
^ Berger, Allen N.; Cummins, J. David; Weiss, Mary A. (October 1997). "The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance" (PDF). Journal of Business. 70 (4): 515–46. doi:10.1086/209730. Archived from the original (PDF) on 2000-09-19. (online draft Archived 2010-06-22 at the Wayback Machine)

Your point is valid in that everyone has different risk tolerances objectives etc. so what is good for me is not good for someone else. As for, is the insurance enough for my children; I added an additional purchase benefit where they can add ten times as much coverage no matter what health issues they have. They don’t have to go through a medical. So of they develop juvenile diabetes and they want to add more coverage when they are 18, the company still looks at them in perfect health. They don’t need a medical exam when they add more coverage.
The sale of life insurance in the U.S. began in the 1760s. The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized a similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. In the 1870s, military officers banded together to found both the Army (AAFMAA) and the Navy Mutual Aid Association (Navy Mutual), inspired by the plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn, and of the families of U.S. sailors who died at sea.
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Upon termination of a given policy, the amount of premium collected minus the amount paid out in claims is the insurer's underwriting profit on that policy. Underwriting performance is measured by something called the "combined ratio", which is the ratio of expenses/losses to premiums.[23] A combined ratio of less than 100% indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.
I am a fairly wealthy Canadian professional with a corporation. I have indeed maxed out all my tax-deferred savings options. I am nearing 50 years old. I only have one child. By the time I retire I will probably have more money than I could use , but my daughter will probably already inherit more money than she will ever need when I pass away. Do I bother with all of this complicated permanent insurance stuff, or just forget it and try to spend as much as I can ?!! Your article makes me want to forget the whole thing is I am not usually comfortable investing in things I don’t understand very well especially when everyone seems to be pushing it due to high commissions. However I seem to be in that 1% group you say would actually benefit from this. What do you think?
Finally, if you’ve already handled all of your other financial goals and you still have disposable income leftover and you want to use that money to buy a permanent life insurance policy that will leave an inheritance for your children, by all means go ahead and do so. But the vast majority of people will never be in that situation, and even if you are in that situation you will likely want a policy that’s specifically tailored to minimize fees and accomplish the goals you want to accomplish. Most whole life insurance policies will still be inefficient and unnecessarily expensive.
I am Also current working toward my CFP as well and I do see some good points. However, what weaken your argument is that you need to include instances where WL is a valuable tool. Your article is bias (as Dave Ramsey is also quite bias) because it is just as easy for me to argue term life insurance is always bad. If that is the case, then no one will buy life insurance and every family will be in financial trouble. You claimed that you are a CFP, and you should know better that you have the obligation to ensure the public is given both pros and cons about all products.
Response 1: This has to be the most common objection. I understand it, but I don’t totally agree with it, so please give it a LOT of thought and decide for yourself. Let’s begin with the idea that insurance is not an investment. That is false. It is absolutely an investment. You spend money in expectation of a financial return, the size of which is usually known but the probability of which is oftentimes unknown (because many people cancel term policies or cannot renew them before they pass away).

Deciding whether to purchase whole life or term life insurance is a personal decision that should be based on the financial needs of your beneficiaries as well as your financial goals. Life insurance can be a very flexible and powerful financial vehicle that can meet multiple financial objectives, from providing financial security to building financial assets and leaving a legacy.

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Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void if the insured commits suicide within a specified time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by the insured on the application may also be grounds for nullification. Most US states specify a maximum contestability period, often no more than two years. Only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding whether to pay or deny the claim.
2) With whole life, if you keep paying your premiums, your heirs will ALMOST DEFINITELY GET PAID. For instance, if you have a $1mn policy at $10k/year of premium, you know with near certainty that your spouse and kids will one day get $1mn. Even if you are paying in $10k per year which is a lot of money, then if you start at age 30, you will pay in $500k cumulatively by age 80. If you die at 80, your heirs get $1mn. Also keep in mind that this benefit is generally NON-TAXABLE!

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A good agent will figure out how much insurance is needed, and if a whole life policy would make sense without causing the policy to MEC within the constraint of one’s human life value. As for surrenders and loans against the policy, good agents discuss how to structure these options for supplemental retirement income to maintain a reasonable death benefit given a retirement age. There are institution(s) that have always paid a dividend and have been top rated every year.
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5The monthly rate shown is for Preferred Elite based on a Male, age 37. Whole Life Advantage® is a whole life insurance policy issued by Allstate Life Insurance Company, 3075 Sanders Rd, Northbrook IL 60062. Whole Life Advantage is available in most states with series LU11040 or form ICC12A1. In New York, issued by Allstate Life Insurance Company of New York, Hauppauge, NY, and is available with contract NYLU796.
Hi James. Sorry for the late reply! So I’ll be honest that I’m not an expert on this exact strategy, but my understanding is that it’s generally something you might look to implement later in life, closer to when you’re actually making the decision about what type of pension payout you want. That’s simply because there are a lot of variables involved that could make it either more or less advantageous, and if you’re in your early 30s it’s just hard to know what all of those variables will look like 30 years down the line.
Life insurance can be very confusing. What is term life insurance? What is whole life insurance? How can you get the information you need and make the right decision about life insurance for you and your family or other beneficiaries? We’ll provide an overview of these two popular types of life insurance so you can get an idea of what might be a good fit for you. Find out more by contacting an insurance agent in your area.

The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance. James Dodson, a mathematician and actuary, tried to establish a new company aimed at correctly offsetting the risks of long term life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his advanced age. He was unsuccessful in his attempts at procuring a charter from the government.
Life insurance can be very confusing. What is term life insurance? What is whole life insurance? How can you get the information you need and make the right decision about life insurance for you and your family or other beneficiaries? We’ll provide an overview of these two popular types of life insurance so you can get an idea of what might be a good fit for you. Find out more by contacting an insurance agent in your area.

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One point I would like to counter is the idea that whole life “is insurance that CANNOT BE TAKEN AWAY”. It can be taken away if you are not able to keep up with your premium payments, which is pretty common given that people’s lives and financial situations are constantly changing. With some policies, the premium can even go up depending on the performance of the policy, forcing you to pay more than expected if you want to keep the coverage in place. So it’s not quite as simple as saying that the death benefit is a sure thing.

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We are both in our 40’s with 2-young children and already have term life policies. We are a single income family who relies on my husband’s commissions (he is in sales)which are not guaranteed year to year. While he has had a few good years where we have managed to max out his yearly 401k contribution, have money in stocks/mutual funds, Roth IRA and at least a years worth of savings set aside in the event of no income we were recommended to invest in whole life as another investment vehicle. Basically, transferring the money in our less than %1 savings account into the whole life policy over the course of 24-years. It seemed very attractive at the time. We simply wanted a better vehicle for investment than our poorly performing savings account. Our advisor (who does work for a big insurance company) came up with whole life ins. We kept asking what other low risk investments that kept our cash flow flexible we could do and he kept coming back to this one. We are currently trying to get more information from our advisor on how to cancel our policy or do you think it is worth it to leave the $20,000 in the policy and just not make any more contributions? Also, any recommendations on what to do with the rest of our savings rather than keeping it in a low earning savings account, but maintaining cash flow flexibility?

And if you want protection from premature death, then you get term life insurance. Very few people have a need for life insurance protection throughout their entire lives. And if you do end up needing it, you can convert your term policy at any time. So no, whole life is not a good option for this kind of protection for the vast majority of people.
Any person who uses permanent insurance should be out of debt and have the discipline to maintain a long term approach. There aren’t any get rich quick schemes and any plan can work as long as an investor looks to get the maximum value for the money they pay. Cash Value Life insurance provides values that promises you or I can’t keep unless we partner with one of these companies.
You can own both whole life and term life policies at the same time. People who are looking at this option typically already have a whole life policy. However, they may find that they want additional short-term insurance coverage such as for 10 years. In this instance, buying a term policy for the amount of life insurance you need for that extra protection can be a good solution.
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Insurance is offered by Safeco Insurance Company of America and/or its affiliates, with their principal place of business at 175 Berkeley Street, Boston, Massachusetts, 02116. This website provides a simplified description of coverage. Nothing stated herein creates a contract. All statements made are subject to the provisions, exclusions, conditions and limitations of the applicable insurance policy. Please refer to actual policy forms for complete details regarding the coverage discussed. If the information in these materials conflicts with the policy language that it describes, the policy language prevails. Coverages and features not available in all states. Eligibility is subject to meeting applicable underwriting criteria.
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Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

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