WalletPop lists seven insurance policies that aren't worth the money and to my surprise, they included term life insurance in the mix with divorce insurance, car rental insurance, and others. Their thoughts:
Some insurance agents may disagree, but Canton says term life insurance can be a big waste of money. In his opinion, term life is like renting a home; it's a "wasting asset." Whereas whole life insurance, while more expensive, is like buying a home. With a whole life policy, part of what you pay is a set amount that goes into a "forced savings" account where you earn interest or dividends and can even borrow against at low interest rates. Term life runs until the end of the term and then it is done -- unless you renew the policy at a very high cost.
According to Canton, about 92% of all term insurance policies never pay a benefit because people lapse (give up) the policy before they die. That's one of the reasons why term insurance is cheaper; carriers know they only have to pay out on about 8% of policies, says Canton.
For a small minority of people who are investment savvy and who believe they will not need coverage later in life, buying term and investing the rest of the money they would have spent on a whole life policy might be a good option, Canton says. For the vast majority of people, however, whole life is a better option because they can be assured that they will have a guaranteed nest egg in their golden years.
Let me highlight a few phrases:
- "Some insurance agents may disagree." Probably. But most would likely recommend whole life. Why? More fees.
- "Term life insurance can be a big waste of money." Yes, it can be a waste of money, just like whole life can be a waste of money -- and just like many things CAN be a waste of money. Think they used the qualifier "can" as an out in case people complained?
- "Term life is like renting a home; it's a 'wasting asset.' " Actually, it's an expense, not an asset at all IMO. Consider this: does anyone put it on their net worth statement as an asset? No, I didn't think so.
- "Whole life insurance, while more expensive." How about "way" more expensive?
- "For a small minority of people who are investment savvy and who believe they will not need coverage later in life, buying term and investing the rest of the money they would have spent on a whole life policy might be a good option." Like those of us who have a plan, know how to handle our money, and eventually become self-insured? Count me in.
Overall, my take is they should have stopped with six insurance policies that aren't worth the money. Term life insurance, IMO, is not a waste of money any more than whole life is, and you can certainly argue that it's LESS of a waste.
What are your thoughts on this issue?