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Is Whole Life Insurance a Good Investment?

A whole life insurance policy can easily be significantly more expensive than a term life insurance plan. Before you buy a whole life insurance policy, talk to a licensed agent about whether it’s a good investment for you.

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Cash Accumulation

In addition to a death benefit, most whole life insurance policies offer a savings or investment component.

When you make premium payments on a whole life insurance policy, part of that payment goes towards paying your death benefit, and another part goes into an investment account (on a tax-deferred basis). Over time, as you pay premiums on the policy and continue to earn interest, your policy builds a cash value.

Borrowing Against the Cash Value of Your Policy

While you’re still living, you can borrow or withdraw from the cash value of your policy. Some policyholders find this appealing because they can access the cash value while they’re still alive, although it generally accumulates interest and reduces the death benefit until you pay it back.

When Is It a Good Investment?

If you have the ability to pay the higher premiums consistently, there can be advantages to owning a whole life insurance policy. A whole life policy may be beneficial for you if:

  • You’ve maxed out your other tax-deferred investment options (401k, IRA, Roth IRA)
  • You want to use it for estate planning purposes because you’re set to owe federal or state estate taxes on your assets

Is Whole Life Insurance Worth It?

For most, there are better ways to build wealth than a whole life insurance policy. Although they have a guaranteed investment return, investment growth is slow and the return is modest (generally around five or six percent interest before fees).

Learn More

For more information about life insurance, read through some of our guides below.

*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.

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