There’s one big difference between term life insurance and whole life insurance. However, let’s start off with what’s the same. Both policies actually have a term life insurance policy. A term policy lasts anywhere from one to thirty years, and you generally pay a small monthly premium to maintain coverage.
Expensive Whole Life Policies
However, whole life insurance tends to be much more expensive. Insurance agents like to claim that it’s a retirement account as well as a life insurance policy, but there’s almost no reason to invest in a whole life policy. Why? The returns are absolutely terrible.
Even if insurance representatives knew how to invest (they don’t), there are tons of extra fees. Annual fees can shave several percentage points off your annual return, so a modest 7% return becomes a lackluster 4% one. Upfront fees can completely drain the first few months of premiums you put into the account, so that money simply disappears.
The Right Choice
Just stay away from whole life insurance. If you’re looking to invest in a retirement account, go with an IRA. The returns will be higher, the fees will be lower, and your money will be safer. With a whole life insurance policy, you’ll still see some returns after a few years (after those upfront fees are paid), but it will be completely disappointing compared to an IRA’s performance.
Term life insurance provides hundreds of thousands of dollars of coverage, the same amount as a whole life policy, for a fraction of the monthly premium. Take those savings and invest them somewhere else.