Cash value life insurance – Good or Bad idea?


Please explain it and tell me if it’s a good idea or bad idea? This would help so many people.

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A reasonable mind might disagree but I think anything except term life insurance for an adult is a bad idea.

What is life insurance? It is to cover debts and obligations for surviving family members. So if you have a 40 year old guy with a wife and a kid (me) then you want a good amount of life insurance so that my wife and daughter will not go into poverty due to my death.

My daughter has no life insurance. If she dies I would be absolutely heartbroken and the thought of it is horrible. However, if that were to happen she has no debt and nobody relying on money from her so she has no reason to carry that kind of insurance.

There are some tax and other advantages to cash value but the cost is higher than term and the difficulty in managing these policies effectively is not worth it for the majority of people.

Others might disagree but most things dealing with money have pros and cons.

Cash value life insurance is only a good idea if you *really* want/need life insurance to the point that you’re willing to pay for it even before paying for things like rainy day funds or retirement accounts. It is essentially a permanent life insurance policy that gives you some flexibility to reduce its value if you need the money for an emergency. In return for this flexibility, you pay extra.

Whether you want to buy permanent life insurance is a personal choice that depends on your life circumstances. There are two primary questions to ask:

1. Is there anyone who current depends on me financially?
2. Will that person likely depend on me financially for their entire lives?

If the answer to (1) is no, then life insurance is useless to you. If the answer to (1) is yes but (2) is no, you probably just need term life insurance, which covers you for the period when someone (like a child) is financially dependent on you but can expire once they are independent. Permanent life insurance only makes sense if you expect someone to be a permanent dependent, like a child or family member who is disabled. If that would strain your budget, cash value permanent life insurance might serve as a way to buy the permanent policy, keep it at full value if you can, but draw it down if necessary. Though again, you pay extra for that kind of flexibility.

Term insurance is very simple = you pay a given amount per month or year and if you die, there is a specified payout amount. You can easily get quotes and compare them.

Cash value life is the opposite. It is specifically designed to be hard to understand and hard to compare. You pay a lot more because of the investment part, but good luck figuring out how the policy actually works and how it compares to other companies, because every company have a unique approach.

If you need life insure, buy term life insurance and take the balance that you would pay for whole life and invest it in an index fund. You will be far better off in the long term.