Myth-whole life insurance has a terrible savings rate

Here’s another quote found on social media that makes me want to pull my hair out: “…it’s (whole life insurance) got a terrible savings rate…”

When I hear this statement, the first question that comes to mind is, “Compared to what?” Never mind the fact that the savings rate, to me, is the % of income being devoted to savings and has nothing to do with the rate of return.

In this case, the person was talking about a rate of return-another instance of focusing solely on one aspect of financial strategy. Doing this means missing the big picture of what exactly whole life insurance can do when positioned as a tier one asset in a portfolio.

With a properly structured whole life insurance policy from a mutual insurance company, cash values for a 30 year old, healthy, non-smoking male at current dividend scales are illustrating 3%-5% internal rate of return over a 20-30 year time frame with dividends going back into paid up additions. Dividends are not guaranteed to be paid each year, but have been paid by the major mutual insurance companies every year for upwards of 150 years in some instances.

Compared to a savings account, CD, money market account, etc.., that after tax rate of return is substantial.

Here are some of the other benefits a whole life insurance policy from a dividend paying, mutual insurance company offers that other “safe” accounts do not:

-Tax advantaged growth of cash value
-An ever-growing death benefit
-Death benefit paid out income tax free to beneficiaries
-Uninterrupted compound growth of cash values
-Cash value can be leveraged via policy loans
-Actuarial science determines premium rates
-Private contract between the insurance company and policy owner

Now, if you are comparing the internal rate of return of whole life insurance cash value to the rates of return that can be earned on some investments, like real estate for instance, then of course 3%-5% isn’t as appealing.  Remember, whole life insurance is not an investment; rather, it can be used in conjunction with other investments.

Whole life insurance is the AND asset, not an OR asset. When you purchase whole life insurance, you aren’t making a choice between that and other assets or investments. You simply use your life insurance policy to enhance the other parts of your financial strategy.

Stay tuned for more myth-busting in future articles and newsletters.

As always, contact us with any specific questions or ideas concerning the use of your policy, or if you are interested in learning more.

Thanks, and please share this with anyone you think would find it valuable.