Insurance as an Investment
Somewhere in these posts is a blurb cautioning the reader not to confuse a bad sales pitch for good advice. The guy selling insurance as an investment is the epitome of a bad sales pitch. This guy is news as bad as it is ever going to get.
The pitch usually goes like this….whole life, it costs a little more but it does so much more. It is an investment in your future. A secure way to build the nest egg your heirs will appreciate and the means to retire in comfort while protecting you against the financial burdens associated with an untimely death.
Whole life insurance costs more because it is overpriced for the protection it provides. You can get the same ‘protection’ from term at fraction of the price. Some of the overage you pay for whole life is put into a savings plan earning 1 to 2 percent simple interest. This becomes that wonderful cash value they talk about.
You can borrow against the cash value in your policy. Indeed! They will let you borrow money that is yours and only charge you 8 percent interest. What a deal! Indeed, it is a good deal but only for the insurance company. They will not let you borrow any more than is covered by your ‘cash value’. That way there is no risk to them. If you default, they simply take your cash value to cover the loan repayment with interest.
Of course all of these ‘features’ are presented in the most positive of ways making you believe that you would be a fool not to give them your money and borrow it back at high interest.
Investing in insurance with profit in mind is like entering a donkey in the Kentucky Derby hoping to win big. You would be better off racing against the horses yourself.