In case you have been caught, I'm here to help. Often, when whole life insurance is discussed, several scenarios are discussed so quickly it is difficult to keep track of all the options. Here is a simple chart to compare a few scenarios:
| Buy Term and Invest the Difference | Whole Life |
| A person purchases cheap term life insurance instead of expensive whole life insurance and invests the difference into mutual funds. | A person purchase whole life insurance for both life insurance and investment purposes. |
| A person owns term insurance but no has investments. | A person owns whole life insurance and has taken out loans on their policy. |
| A person owns term insurance and invests into an indexed annuity. | A person owns an indexed universal life insurance policy. |
If someone does not have enough discipline to invest money on a regular basis, they will also not have enough discipline to avoid taking loans out from their whole life insurance policy. In this case, they are better off just purchasing cheap term insurance because there will be higher costs in the whole life insurance policy.
Likewise, if someone wants the guarantees provided by a life insurance company, that person is better off investing a portion of their portfolio in an indexed annuity offered by the life insurance company with similar guarantees. There are three main reasons:
- There is flexibility to discontinue insurance coverage but keep the investment.
- It is easier to allocate a specific amount rather than put all your eggs into one basket.
- There are typically higher costs associated with a permanent life insurance policy.
This post was reposted from http://finlit.biz/life-insurance/are-there-alternatives-to-an-indexed-universal-life-policy-part-2/, originally written on March 14th, 2013.
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