Should You Get Whole Life Insurance?
Insurance isn’t exactly the most exhilarating and gripping financial topic, so this is my attempt to explain the basics of life insurance as simply and briefly as possible.
The purpose of life insurance is to replace an economic loss resulting from the death of an income earner. Unlike other types of insurance, life insurance does not benefit the policyholder. The objective is to provide for the people you love in the event of an untimely death.
Who needs life insurance?
Anyone who is financially responsible for others.
The exception is those who have accumulated enough wealth to be self-insured, meaning if they passed away, their loved ones could live comfortably on the deceased's assets without needing proceeds from a life insurance payout.
Term Life Insurance
There are plenty of options when it comes to getting life insurance, but as with most personal finance decisions, the simpler the better. Term life insurance is the most basic, easy-to-understand, and inexpensive option.
When you buy a term policy, you get coverage for a specific period of time (hence the phrase “term”), such as 10, 20, or 30 years. If you happen to die during that time frame, your beneficiaries will receive a tax-free payout based on the coverage amount. If you outlive the term (congratulations!), the policy expires and there’s no payout.
The goal is to eventually become self-insured by the time the policy lapses. The amount of life insurance you need goes down as you age, as your kids move out of the house, as you pay off debt, and as you save and build more assets.
Whole Life Insurance
Another type of life insurance is called whole life insurance. It can also be referred to as permanent life insurance, universal life, variable life, variable universal life, indexed universal life, etc., which are all complicated variations of the same type of insurance.
As the name implies, whole life insurance gives you coverage for your entire life—not just a certain period of time. Because the policy covers you for your entire life, the monthly premiums are far more expensive than term life insurance, often up to 15 times more for the same coverage amount.
In addition to death benefit coverage, each policy also comes with a savings or investment component, known as the cash value, which is supposed to grow over time. With term insurance, your entire premium payment goes towards the cost of insurance. However, with whole life insurance, your premium is split between the cost of insurance, the cash value portion, and the commission fees of the agent who sold you the policy.
Unfortunately, only a small amount of that premium payment each month actually goes to build up your cash value. The rest is divided up between the higher cost of insurance and the commission check for the agent. Because the insurance and commission fees are front-loaded on these policies, many policyholders won’t see their cash value amount exceed what they’ve paid in premiums for 10 to 15 years.
That’s 10 to 15 years of zero return on your money. Instead of locking yourself into paying expensive premiums for a poor investment, you could buy a cheap term policy and use the monthly savings to pay off debt, build wealth, or take vacations with family.
Life insurance is good. Investing is good. Mashing them together into one product is completely unnecessary.
Should you buy whole life insurance?
Probably not.
In personal finance, there are no universally right answers that make sense for everyone… but this is as close as it gets.
How much coverage do you need?
It depends. I’ve seen 10 or 15 times your income as a rule of thumb. Or 25 or 30 times your annual spending. You can start by simply asking what your dependents need in the event of your death. Do you want to pay off all of your remaining debt? Fund college expenses? Give them enough to retire?
Here’s a clip of Walter White from Breaking Bad figuring out his own life insurance need:
Getting life insurance is one of those “plug your nose and take your medicine” personal finance tasks. And since none of us enjoys pondering our death for too long, it also falls under the “important but not urgent” category of tasks that we tend to procrastinate. Yet, it’s an integral part of any financial plan.
Thanks for reading!
Jake happy to help clarify why whole life (WL) even exists.
I’m not going to argue that most WL sold shouldn’t have been that’s true. But in the right use cases, WL can outperform market alternatives for its role.
Think of it like chemo: I introduced this analogy because both are powerful tools when applied correctly. Chemo saved lives when used appropriately but got overused because people were paid to push it. Same with WL: it’s not the tool’s fault, it’s the incentive structure that led to misuse.
Here’s what your piece missed:
✅ Modern Whole Life Pros (when designed right)
Break-even at 4–5 years = early liquidity + flexibility
Tax-deferred growth + tax-free loans = no sequence risk
Guaranteed death benefit + cash value = stability in volatility
Private banking tool → cash value = cheap, fast collateral
Asset + creditor protection in most states
❌ Cons
Requires discipline + long-term view
Bad design = old 10–15 year breakeven, poor returns
Loans need active management or reduce death benefit
⚡ Why your argument is flawed
10–15 year zero-return? That’s outdated modern designs from ethical, and educated private agents break even in 4–5 years.
WL’s real IRR ~5% compares favorably to bonds/CDs with better tax treatment.
WL serves key roles: estate planning, legacy assets, tax arbitrage, asset protection, private banking.
As a fellow advisor who is also independently insurance licensed, it's frustrating to see the bias against whole life (and other insurance products) that many other advisors have.
We've softened a bit with annuity products, particularly since folks like Kitces and Pfau have demonstrated their utility, but for some reason the same hasn't happened with whole life insurance despite similar studies demonstrating how useful it can be as a non-correlated asset with guaranteed returns for situations such as mitigating against sequence of returns risk.
I suspect the main reason is misinformation and a lack of understanding of the mechanics of the product as demonstrated by your post (I say this gently in the spirit of constructive criticism).
Some examples:
● Whole life, universal life, variable life are all types of permanent insurance, but they are all distinct products, not just different types of WL.
● Your description of insurance commissions is a bit misleading. Term and WL both front load commissions. In year 1, the agent will receive a large commission equaling ~50-130% of the initial annual premium. Then in a handful of subsequent years, the agent will receive a small trailing commission (~5% or lower, decreasing year over year). So both WL and term premiums are going toward commissions in a similar manner.
Secondarily, and more cynically, I believe it not only has to do with pushy insurance salespeople, but also with the fact that it's an expensive product that takes away from advisor AUM.
It's true, anyone pushing it primarily as a wealth-building or income replacement vehicle is probably just trying to make a commission, but to reject an entirely useful product simply because it's commissioned seems disingenuous and short sighted.
I've been in the industry long enough to know how sales driven a lot of fee-only advisors and firms can be. AUM drives decision-making. And while not all advisors are predatory, some are. Likewise, not all insurance agents are predatory simply because commissions are baked into the product (there's literally no alternative compensation structure), but some are.
I think it would also be worthwhile reading up on different whole life policy designs. There are a lot of options that solve for a lot of the common issues that advisors seem to express with WL. Paid up additions, short pay, blended policies, riders. It helps to work with an agent you trust who can craft a policy design specifically for your particular client. We work with a lot of RIAs in our area doing exactly that as they appreciate that we're also wealth managers who get where they're coming from (obviously we also have a strict "no poaching" policy).
Hopefully my reply was helpful and educational in some regard. I'm a bit frustrated at the ubiquitous knee-jerk reaction many advisors have against everything except term insurance. As I mentioned, not too long ago that included annuities as well. Thanks for letting me vent a bit in your comments.