Question: Kelly in Batavia: Just wondering what your thoughts are on permanent life insurance as an investment. I’m 60, about to retire, and my term policy is about to lapse.
A: Generally speaking, we do not recommend life insurance as an ‘investment.’ For one thing, it’s expensive. Compared to a term policy (in which you’re covered for a set duration of time), a permanent policy can cost upwards of ten times more on an annual basis. For example, a 2022 NerdWallet analysis found that while a 20-year term policy (with a $500,000 death benefit) for a healthy 50-year-old woman would cost $654 a year, a whole life policy for the same death benefit would cost that same person $8,347 a year.
And yes, proponents of permanent life insurance will tout its ‘forced savings’ advantage or its tax-deferred growth benefits. But remember, retirement accounts like a 401(k) offer these very same benefits – but with more investment options for a wider range of risk tolerances.
In all honesty, for most people close to retirement (or in retirement), life insurance – in any form – is typically no longer needed. Why? Because life insurance, in its truest form, is meant to protect against the risk that there will no longer be a stream of income to pay the bills if you’re not around. So, look at your current situation: Is anyone else, such as a child, still dependent upon your income? If there is, then consider another term policy. But if there isn’t, take the next step and assess the state of your finances. Because if you’ve saved well, have no (or little) debt, and your retirement income will come mostly from retirement accounts, then you likely can forego a life insurance policy. But of course, there are always exceptions