What Critics Say About Whole Life Insurance Policies
Whole life insurance policies are a type of permanent life insurance. As such, whole life insurance policies also come with an investment portion. The whole life policy has a fixed premium and death benefit, while the cash value portion of the policy can increase over time. Here are some of complaints about whole life insurance from insurance observers.
Cons of Whole Life Insurance Policies
- Investment return limited. Whole life insurance companies usually offer one or two investment options in their policies that are generally very conservative. Some policies offer a minimum return on the cash value of the policy that’s guaranteed. However, that figure is often 4 to 5 percent – or less. Critics of whole life say policyholders could take the money that goes to the cash value portion of their policies and get a much better return through stock market investments.
- Commissions on premiums. Critics also argue that the policies pay out large commissions that further lower the amount that is returned to policyholders. If a goal is to make money, then it makes little sense to choose an investment vehicle where a very low return on your investment. But that’s just what whole life insurance policies offers – a steady but unspectacular cash value.
- Premiums are costly. Compared to term insurance, the premium for a whole life insurance policy is much more expensive. For example, a healthy 40 year-old man might be able to get 20 years of term insurance with a $500,000 death benefit for under $40 a month. That same $500,000 death benefit would cost a healthy 40-year-old as much as 7 to 10 times more. Of course, supporters of whole life argue the premiums must be more expensive since they also go to the cash value of the policy.
- Limited flexibility. Compared to other permanent life insurance options, there is limited flexibility with a whole life insurance policy. A whole life policyholder can get a low interest loan against the cash value of the policy, but has limited choices and control when it comes to the investment portion of the policy. Under variable life, for example, the policyholder can choose from a wide variety of investment accounts. Under both universal and variable life, the policyholder can change the premium or death benefit, as long as there is enough money to pay the minimum requirements in the policy.