It’s probably not your best bet in that regard.
- Whole life insurance policies accumulate a cash value.
- While these may count as savings, there is a better way to build cash reserves yourself.
- Having savings separate from life insurance is a smart financial move.
The purpose of life insurance is to protect the people most important to you from financial problems in the event of your passing. Let’s imagine you are the sole breadwinner in a family consisting of you, a spouse and a child. If you were to die out of the blue in an accident, what would your family do for money?
It’s a scary question to think about, which is why life insurance policies exist. And you might be surprised how affordable it is to put one in place — that is, if you opt for term life insurance.
Term life insurance only covers you for a specific period of time. But that period can be long. It is common to get a life insurance policy that provides protection for your loved ones for 30 years.
Now one thing you need to know about term life insurance is that these policies do not build up a cash value. If you buy term life insurance at age 30, opt for a 30-year term, and find that you’re still alive and at age 60, you get nothing out of that policy (but you’re still alive, so there’s ).
On the other hand, whole life insurance policies do accumulate a cash value. And that’s money that can technically count as savings.
But does it make sense to opt for whole life insurance for the savings component? If you ask financial expert Suze Orman, the answer is a resounding “no.”
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There are better ways to build savings
It’s easy to see why whole life insurance might appeal to some people. If you buy a whole life policy, you may end up getting a financial benefit from it, whereas with term life insurance, you may never get a payout from your policy.
But there’s a big problem with whole life insurance — it can be prohibitively expensive. In fact, it’s not uncommon for whole life insurance policyholders to let their coverage lapse because they can’t afford it.
Therefore, term life insurance is really your better option. And if you’re worried about missing out on that savings component, Orman says it shouldn’t be a worry.
In fact, in a blog post, Orman says, “Don’t let anyone tell you that your life insurance policy is a great way to build extra savings. Fall for it and you’ll end up wasting thousands of dollars over the life of the policy.”
Take savings matters into your own hands
Life insurance and savings actually have two separate goals — and should be treated as such. That’s why your best bet may be to spend less on premiums for a term life insurance policy, but then use the money you don’t spend on higher premiums to boost your savings account balance. That way, you don’t end up throwing money away on lifetime premiums.
Remember, the danger in whole life insurance is that if you stop paying your premiums, your coverage can lapse – and you could end up with no savings and no insurance. So rather than take that risk, consider a life insurance policy that actually fits comfortably into your budget.
Our picks for the best life insurance companies
Life insurance is essential if you have people who depend on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.