Life insurance is good and has a very specific role, but it's a bad choice for developing retirement income. As with any insurance product, it's primary purpose is to defer risk, not create income. Here are three reasons a whole life insurance policy is not a good idea for retirement income planning.
Whole life insurance is just that - it's an insurance policy that covers you for your whole life. If you follow the principles that we teach, i.e. paying off debt, saving and investing, you don't need life insurance for your whole life. Instead, you need a term life insurance policy to protect your beneficiaries until you become self-insured by your assets and other investments.
When an investment product is combined with an insurance product, the result is typically an expensive product for the consumer. By the time your monthly premium pays for the insurance, marketing, premium tax, and commission to the advisor that sold it to you - there's very little margin to pay you interest on the cash value.
I've been working with retirees in this area for over 15 years. One thing I've never heard any of them say is, "I'm ready to retire because of my whole life policy". The promises made about the cash value and tax benefits never work out the way they were told. Never.
If you need life insurance, get term insurance. Term life insurance not only does a great job of protecting it's beneficiary in case of death, it's cheap. If you want to invest for retirement, invest in IRAs, 401(k)s or similar retirement plans.
Own a whole life insurance policy? We would be glad to help and/or answer any questions you may have.
Give us a call at 320.222.4236 or email me at firstname.lastname@example.org.