Why is whole life insurance so expensive? The Answer is Simple: There’s no free lunch with anything insurance-related. Life Insurance is NOT Post Underwritten.
Post-claims underwriting is when an insurer investigates an individual or small group policyholder’s medical history after the policy has been issued, and in particular after claims are submitted. Insurers have said that post-claims underwriting prevents fraud and therefore helps keep premiums rates low.
Most insurance policies post underwritten, Travel Insurance for example, is cheap and sometimes comes included with your credit card, because it’s not until you file a claim that the insurance company knows anything about you.
Whole Life Insurance is Fully Underwritten Insurance, meaning that if you ask for a lot of money $250,000USD as of May 2024, is a lot of money and with Whole Life Insurance, it’s structured like a savings account, it’s the rare type of insurance that actually pays you to own it, because of the compounding effect.
Whole Life Insurance is indeed the best insurance for people who like to save to money. However, it’s still insurance, and it’s important to remember, that insurance companies can not PRINT money the way banks can, so for people who understand how life insurance works, we actually purchase whole life insurance as soon as possible, not only because of the savings, but because insurance companies will reject you.
Some insurance companies even pull your credit report; why? Because not paying back “loans” can be a sign that someone might default on their premiums, and if someone has bad credit, this could lead to a default in premiums.
Because of the confusion that surrounds dividend-paying whole life insurance, people are often not aware of why whole life insurance is so expensive. It’s expensive because it’s GUARANTEED to pay you something, so long as you pay your premiums, whole life insurance has CASH VALUE.
Term life insurance policies are NOT guaranteed and do not have any cash value. What this means is that most people outlive their term life insurance policies, meaning that the life insurance company never pays the policyholder one cent. Whole Life Insurance is the opposite. It actually becomes free after about ten years and can even be restructured because it has CASH VALUE in it.
This sounds silly to people who believe in Buy Term, Invest the difference because they often ignore or don’t understand the CASH VALUE component, but the cash value component, which your beneficiary DOES NOT receive when you die, is why the dividend paying whole life insurance is so expensive.
Because the Whole Life Insurance DEATH BENEFIT is GUARANTEED, and the cash value is there in the event you decide that you don’t want the whole life insurance anymore, it equates to the insurance company having a lot more risk, which justifies the higher price.
Dividend Paying Whole Life Insurance definitely isn’t for everyone, but it’s by far my favorite life insurance policy.