When it comes to life insurance, it’s important to understand why you’re buying it and how much coverage you need. Whole life insurance, in particular, can be a tricky topic. It’s profitable for the person selling it, but it may not be the best deal for the buyer, especially if they’re young and single with no dependents.
Cody, who’s brother-in-law’s friend just sold him some whole life insurance at the age of 26, is thinking about bringing up the topic to him. If he decides to do so, he should focus on the reasons why whole life insurance may not be the best choice. For example, a 26-year-old who is married or has kids or has debt obligations or someone who’s depending on their income would have an insurable need on their life and would justify buying life insurance.
On the other hand, if the person is young and single, and no one is dependent upon them, then life insurance may not be necessary. Even if there is a justifiable reason for buying life insurance, Cody should ask how the person decided on how much coverage they need. For example, if the person needs a million dollars in coverage, whole life insurance would be a very expensive option. For the same amount of coverage, a person could buy a million dollar policy for a couple of hundred dollars.
Whole life insurance can be appealing because it promises to build up cash value and invest it for growth, but it’s important to remember that you can build up value in an investment account on your own and grow it without the life insurance structure. Additionally, when you get to the end of the insurance product, you build up all this cash value, and you have to borrow it from yourself and make sure that you leave enough value inside of the policy for eternity, so that it does not lapse or else all those distributions would end up causing a taxable event.
In summary, whole life insurance may not be the best option for a young and single person, and it’s important to understand the reasons why you’re buying it and the costs associated with it. If you’re considering buying life insurance, it’s important to have a thorough understanding of the product and the implications it has on your financial future.