Episode 15: Whole Life is Not an Expense

In today’s episode we discuss Whole Life insurance to better understand the expense side of Whole Life policies and how it relates to the Infinite Banking Concept.

Whole Life can be the lowest cost coverage over time because the cash values grow to be more than the premiums paid. Should you really consider it an expense then? Tax and retirement expert Ed Slott doesn’t think so. Neither do we.

Take a listen and decide for yourself.

Additionally, take a look at the graph below. As mentioned in this episode, if we compare the NET COMPOUND COST of two equivalent life insurance policies; a $1M term policy and a $1M whole life policy over 50 years. These have equivalent features such as chronic/terminal illness riders and disability riders.

Because whole life insurance accumulates a cash value, the net compound cost of whole life insurance becomes lower than term insurance between years 10 and 11, even though whole life insurance has a higher payment. This speaks to the stark difference between the payment and the cost of a financial decision.

The full 50-year comparison can be seen here:

What we can see from this analysis is that there is, in fact, a financial advantage to term insurance in the early years of this comparison. The advantage stops, however, halfway through the 20 year term of the term life policy. It then drastically changes once the term policy expires. This is because the net compound cost of the term payments don’t stop after 20 years just because the payments stop.

The total payments made over 20 years is $69,600, but the net compound cost – meaning the lost opportunity cost of those payments, at a 4% cost of money, add up to $350,000 over 50 years. That’s a negative $350,000. This is the true cost of that term insurance.

Whereas the cumulative payments made over 20 years to the whole life policy equal $303,280. Much higher. However, there is a growth component to this policy. So while the payments where much higher, at the end of 50 years the cash value has grown to $2,000,000. The death benefit has grown to $2,250,000. This is a guaranteed future cash flow to be paid out, tax-free, to the heirs of this policy.

Where do you store your cash?