You’ve seen all the ads on social media for term insurance, right? I know I have, and I can’t help but shake my head every time. Now, don’t get me wrong, term insurance has it’s place. In many cases it’s been a great product for making sure you have the coverage you need at a price you can afford. However, if you can afford to spend more, you’ll save more in the long run.

So, you want life insurance, but you don’t want to pay much for it. Who does? No one wants to pay more than they must for anything. That’s why when I think about all these people buying term life insurance, I can’t help but think they don’t know the secret of Whole Life Insurance.

What if I told you that you don’t have to pay for Life Insurance at all? Most people’s ears would perk up, I’m certain of it. Free Insurance? Tell me more!

Free Life Insurance?

Well nothing is free; we all know that. If anyone tells you something is free, there’s usually a catch. If not, they’re offering something that probably isn’t worth having. Even though there’s no such thing as free insurance, there is a way to get back all the money you paid for it. Is that the same as free insurance? Not really, but it’s still better than getting nothing back at all, no?

Here’s the thing about Whole Life Insurance. Yes, the premiums are more expensive, but after you’re done with the policy you can get your money back. In fact, you can often get much more than just your money back. This makes it kind of like an investment. Mind you, you aren’t going to make a whole pile of beans from this investment, but that’s not the interest here. The interest is knowing that you have insurance.

The thing about a term life insurance policy is you don’t get anything when the policy terminates. Nothing. So that $50 per month you were paying for the $500,000 on your life over 20 years may sound like a good deal, but after 20 years you might come to realize that you paid $600 a year ($12,000 total) for a policy which you now have nothing to show for. Essentially, you’ve thrown away $12,000.

Now lets consider the Whole Life Policy again. No, it’s not free, but at least you can get your money back when you’re done with it. Each Whole Life policy is equipped with something called a Cash Surrender Value (CSV). This feature actually builds up a cash value on your policy over the years you keep it in force. After a while, the CSV starts to become valued at a larger amount than what you’ve paid in premiums. If you come to a point where you decide you don’t need the insurance anymore, you can surrender the policy and take a payment from the insurance company for the amount it has gained in value.

Another feature to consider is the “Paid-up in 20”. The policy costs you more, but after 20 years, your premiums are all paid up and you get to keep the policy in force and never pay another premium. Coincidentally, by year 20, the CSV is typically worth more than what you’ve paid in premiums over the past 20 years.

Now you have a choice:

  1. Surrender the policy and get your money back. If you don’t need the insurance anymore, this is a good choice.
  2. Keep the policy in force and let the CSV continue to build. Maybe you still could use the insurance. Maybe not. Either way, if you keep the policy in force, the CSV keeps growing. After another 20 years it could be worth twice what you paid for it. Best of all, you’re not paying for it anymore, so why not?
In this table you can see a comparison for term insurance vs. whole life. Notice the significant difference in price of the two policies over the years. Again, we’re not saying that whole life insurance is cheap. It’s not, it costs quite a lot in comparison. However, you’re getting money back when you’re done with the policy after 20 years or however many more years you choose to keep it. In fact, you could potentially triple your money after 30 years on a $500,000 insurance policy. Bear in mind that these values are based on today’s interest rates. It’s fortunate that we can appreciate a lower interest rate these days. In the future if interest rates are higher, you could expect to see an even better return on these policies.

So let’s say a 35 year old man buys a Whole Life Policy for $500,000. Sure, $566.35 per month is a hefty pill to swallow, but if he can afford it, it’s worth it for him in the long run. Bear in mind that’s based on a 20-year paid up policy. It would be much cheaper on a life pay plan.

Over the course of 20 years he can expect to pay a total of $135, 924. He can actually save some money if he pays annually and knock his annual bill down to $6292.77. That works out to $125,855.40 after 20 years. An extra savings of $10,000. The CSV stays the same no matter how the policy is paid for. Based on today’s interest rates, if this man decided to keep the policy in force until age 75 (30 years) his CSV is worth $369,802.00 Nearly three times what he paid for it. Best of all, he paid off the policy at age 65, so the last ten years he was paying no premium at all.

For Better or Worse

Consider a Whole Life Insurance policy instead of a term policy the next time you shop for life insurance. If the premiums are affordable for you it’s well worth it in the long run. If you need $500,000 of life insurance, but the premium is just too high think about getting both Whole Life and Term Life Insurance. You can bring down your premium significantly by getting $100,000 of Whole life insurance and adding another $400,000 in term insurance. Realistically, you may not need $500,000 for more than 10 or 20 years, but having $100,000 after 10 or 20 years be still be reasonable.

In any case, don’t rule out Whole Life insurance just to save money. Your money will be worth far more to you in 20 years than it is now.