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Term vs. Whole Life Insurance:

Cash value life insurance (including whole life) will not help you retire wealthy. Cash value life insurance is one of the worst investment products out there.


Over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are very low. Your insurance person will show you wonderful projections, but none of these policies perform as projected.


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Cash Value Example: If a 30-year-old man has $100 per month to spend on life insurance and shops the top 5 cash value companies, he will find he can purchase an average of $125,000 in insurance for his family. The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20-year-level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100, saving him $93 on the death benefit portion of the policy.


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Most of the other $93 per month disappears in commissions and expenses for the first 1-3 years. After that, the return will average 2-3% per year for whole life, 3-5% for universal life, and 6-8% for variable life policies. The same mutual funds many variable life products invest in return an average of 12% per year.

Worse yet, with whole life and universal life, the savings you finally build up after low returns for yours don't go to your family upon your death. The only benefit paid to your family is the face value of the policy, the $125,000 in our example.

The truth is that you would be better off to get the $7 term policy and put the extra $93 in a piggy bank. Just live another 3 years and when you're dead, you would have $3,000, and your family would get your savings.

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