Is Whole Life Insurance a Good Investment?

A question that follows naturally is whether, in general, the capital held in a whole life policy provides an acceptable investment alternative for today's insurance buyer.

Before we get to the answer, please remember that each person's situation is different, so you need to filter the general suggestions through your personal situation. You need to examine the assumptions upon which the answer is based. If you are in agreement with the "whys" of the conclusion, then maybe you are in agreement with the conclusion.

Now, to the answer: No, whole life is not an acceptable alternative for most people today. The reasons and assumptions underlying this conclusion are as follows:

1. The bond mortgage general account investment of any life insurance company cannot be expected to provide in excess of a 5 to 6 percent return over an insured's lifetime.

2. Inflation causes the policy values to decrease over a lifetime.

3. A bond mortgage account provides insufficient diversification for the long-term investor.

4. The general account creditor risk, the fact that the general account assets are subject to the creditors of the company and the company can fail, such as happened with Executive Life, Mutual Benefit Life, Confederation Life, etc., is unacceptable and unnecessary.

5. The policy provides the policy owner with insufficient control over the investment. It requires an irrevocable decision at policy inception to remain in the general account investment for the insured's lifetime.

6. The policy is a single-pocket policy. It offers only the bond mortgage account and provides no method of changing that investment if investment needs or desires change.

7. The policy is inflexible with regard to premium payment and face amount.

8. You are insurable and you have no trouble obtaining insurance at acceptable rates.

9. If you do not intend to commit suicide, or commit fraud on any of the papers you complete to obtain a policy, then you can exchange your existing whole life for a more flexible contract (underwriting requirements).