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The Curious Bag
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<h4 class="dechead">On One Hand: Inferior Rate of Return
Permanent insurance, also known as whole life, has two components: a death benefit and a cash value. The cash value is where part of the premium is invested on behalf of the policyholder. The SmartMoney magazine website, representing the prevailing expert consensus, states that whole life insurance is inferior as an investment vehicle since other methods give a higher rate of return.
On the Other: Wealthy May Benefit
Perhaps the primary benefit of the investment portion of a whole life policy is that the gains are tax deferred. This benefit is most helpful to wealthier people who are in the higher tax brackets. Also, according to the Illinois Department of Insurance, the policyholder may borrow against the cash value of the policy.
Bottom Line
The expert consensus is that the average person is better off buying term life insurance, which has much lower premiums than permanent life insurance and investing the difference in another financial product, such as a mutual fund.
Source:
SmartMoney.com: Term or Whole Life
Illinois Department of Insurance: Illinois Insurance Facts Buying Life Insurance
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