Whole life insurance as the name implies, is an insurance that has a death benefit which lasts until the day you die. It is very similar to a savings or an investment account which becomes a cash asset over time.
The main purpose of whole life insurance is to ensure that financial resources are made available for your children and loved ones when they need to get to that point where they can fend for themselves after you die.
Whole life insurance might have many upsides which may include providing lifelong protection, helping you accumulate cash value and many other benefits; it also has its downsides. For instance, it’s much more expensive than other types of insurance, and it might take you many years before you enjoy many of its lining benefits. As explained on reviewsbird.co.uk, most people don’t even need coverage for their entire life, so this insurance might be a bad investment to start with.
To further buttress our point, check out these reasons why whole life insurance might be a bad investment for you.
· It Is Undiversified
It is undiversified in the sense that companies that offer life insurance only give you the opportunity to invest a large amount of money in one company while relying entirely on the company’s benevolence to give you good returns. After the insurance company has made their own investment, they will then decide on what portion they will give to their shareholders. This leaves you completely at their mercy. Now imagine if this insurance company goes bankrupt…you totally run at a loss. Putting all your eggs in one basket exposes you to a great risk from a single company unlike.
· Returns Are Not Guaranteed
Life insurance salesmen would talk about their returns as if they are guaranteed, but they are not. Returns from stocks and bonds are not guaranteed, you would be disappointed to think whole life insurance is on a different level…it is absolutely no different.
Since the company is trying to sell to you, the company would only make amazing long term growth illustrations that are simply projections. In reality, there are many risks that come with the actual process which are worse. You need to understand that ‘guaranteed return’ is absolutely deceptive when it comes to life insurance. It is advisable you run the numbers for yourself and see if it is worth it.
· It is Illiquid
Even though you might hope to never have to touch your long term investment, the reality is unexpected things like life situations happen and with more options comes financial security. Having access to your money brings options to your table. Unfortunately, life insurance doesn’t give access to your returns due to some reasons which may include surrender charges, payback interest and some penalties. There’s absolutely no accessing your investment before it’s ripe period.
· Lack of Transparency
There are many fees that are never explained to you in whole life policies. Feels like commission to the salesman, cost of the insurance, administrative costs, to name but a few. By not being transparent with you, they make it impossible for you to understand what you’re paying for.
There are numerous terms and conditions which make life insurance very complicated; even their salesmen don’t understand how it works. Really, you don’t want to trust your money with this kind of person.
Whole life insurance, in certain instances, can be very useful. For instance, If you have a genuine reason for a permanent death benefit or you have a large amount of money. Aside from these, a lot of people do not need these insurance, neither do they have a large amount of money to make the insurance a worthwhile investment.