Is Whole Life Insurance
Worth It?

By Brandon Roberts

If you've been doing a lot of research about the different types of life insurance, maybe you're wrestling with a big question...

Is whole life insurance worth it?

That's a simple question with a not-so-simple answer. It really depends on what you want to accomplish.

Unlike a lot of financial bloggers you'll find on the internet, we don't just write about this stuff, we help people figure this out in real life. 

In fact, we focus 99% of our energy on helping our clients maximize the cash value accumulation of whole life insurance.

Over the last 8 years, we've helped hundreds of clients get the whole life policies they wanted.

At least a few times a week we're faced with questions like, "does it really work?" or  "is a whole life insurance worth it?"

I've written about that very issue in painstaking detail but for now I'll skip the salad and serve you the steak...

If you're young, just getting started in your career and only have a couple thousand bucks a year to put away, buy term insurance for now.

On the other hand, if you've got extra cash and an open mind, whole life insurance is worth a look at the very least.

If nothing else remember this...

There is a "right way" to setup whole life insurance if your primary goal is cash value growth. 

That being said, I'm open to the idea that plain old whole life insurance policies can be decent at wealth accumulation. Even without a highly customized design like we use for our clients.

But, if you could have your cake and eat it too, wouldn't you do it?

I'll come back to that a bit later.

I've met a lot of people who own whole life insurance and most of them didn't buy policies from me.  Most of these discussions have started with people voluntarily sharing their experience with whole life insurance

You know how a casual conversation with a stranger sometimes results in a discussion about work and professions?

Well, I'm no good at small talk or finding clever ways to tell people what I do. 

My clever description... "I sell life insurance " 

While the majority of people I talk to in casual conversation are quick to move on to a different subject, occasionally, people want to share their story. 

It's usually a tale of how they purchased whole life insurance and they've had it for a 20 years or more.

Their eyes light up and they say something like...

 "I have a whole life policy I bought back in 1980-something, and let me tell you that was one of the best decisions I ever made! "  

Why are they so anxious to share their excitement?

Because that boring whole life policy now has a boatload of cash value that they'd never have if they'd tried to save it some other way.

I'm not coaxing that response from people.  That's what they tell me.

Just how much cash value you might ask?  Let me give you an example.

I stumbled upon an article a while back that attempts to make the claim against whole life insurance.

The article itself doesn't provide any insight. It's a typical hack job written by someone who doesn't understand how whole life insurance actually works.

However, there is some gold buried in the article. Oddly enough, it's deep in the comments section.

Admittedly, most of the comments are about as useful as you'd expect.

But there is one person that stepped up to share their actual  experience and I've pasted it below for you to read:

Based on what Jim shared, the compound annual growth rate on his cash value is 6.27%.

Not bad for a whole life insurance policy.

Keep in mind, it wasn't even designed to be good and is issued by a company that basically turned its back on whole life insurance years ago.

Jim's story is interesting for two reasons:

  1)  It provides us with 36 years of historical data from an actual whole life policy

  2) Jim's whole life policy was issued by State Farm. A company that has shifted its focus from dividend-paying whole life insurance.

I calculated the internal rate of return on this whole life insurance policy and it produced 6% return over 36 years. 

Amazing! A boring old whole life policy.

Could Jim have done better if he had invested that money in mutual funds, stocks or real estate?

Maybe. But the risk of doing those things versus whole life insurance isn't even in the same universe.

Would he have had the guts to stay fully invested in 2000, 2001, and 2002 when the market fell by double-digit percentages for two straight years?

Who knows if he would have stayed fully invested in 2008 when his losses would have been well over $100,000 as the market "corrected ".

Take a look at this chart, it gives you a great idea of what happened in the S&P 500 during that time period on an annualized basis.

It also shows you the drawdowns that happened within each year. Looking at those drawdowns is so important and nobody talks about it, because we tend to focus on annual returns.