Why You Should Consider Ditching Your Whole Life Policy

I remember sitting through many lunch and learns back in dental school and residency where we were constantly told that we needed to get life Insurance. After the differences between Whole and Term Life Insurances were discussed, many of the insurance agents(Reps) would emphasize the need for Whole Life versus Term Life Insurance, especially for us soon-to-be dentists. They advertised Whole Life Insurance as the best plan to “offer great returns”, “protect our assets,” while providing a substantial death benefit.

Fast forward a few years later and after much research, I have come to the realization that obtaining and holding a whole life insurance policy was not the best idea. Let’s look at the difference between the two:

Term Life Insurance

Term Life Insurance is “pure” life insurance. The policyholder pays fixed premiums for a limited period of time (term). If they die while the policy is in effect, their beneficiary receives a death benefit.

Whole Life Insurance

Whole Life Insurance is a type of permanent life insurance which is guaranteed to remain in force for the insured's entire lifetime. It offers a savings component and life-long protection. As long as premiums are paid, whole life insurance provides a death benefit after you die.

Life insurance is not a very good investment vehicle. Life Insurance is best utilized in case of unexpected death, hence the case for term life insurance.

Here’s Why Whole Life Insurance May Be A Bad Idea:

  • The cost of whole life insurance is a lot higher than the cost of term life Insurance.

  • In Term life insurance, the beneficiaries receive the death benefit IF you die during the designated period. Whereas, in whole life insurance, the death benefit is received WHEN you die.

  • Whole Life insurance provides a death benefit in case you die while someone else depends on your income, but it is a very expensive way to provide that protection.

  • Whole Life insurance accumulates a cash value that you can borrow against. However, it takes time to accumulate that cash value. In fact, your first year premiums usually are paid to the agent that sold you the policy. While there may be a number of uses for this cash value, it is generally inferior to other options that can accomplish the same purpose.