It is not easy to stay out of the ongoing battle between term life insurance vs. whole life insurance. Typical life insurance strategies focus on the need for life insurance protection and this is really about the cost of paying for a death benefit.
Term life insurance offers an inexpensive way to purchase a death benefit for a limited “term” or time period. Generally, term policies never pay a death benefit because they expire prior to death, and insurance companies know this when they issue these inexpensive policies. If one stops paying on a term life policy, the coverage is simply forfeited.
Whole life insurance (AKA cash value life insurance) offers a permanent accruing death benefit protection as well as accruing cash value growth within the policy over the life of the policy holder based upon mortality tables.
Policies issued for the past 10 years use 2001 CSO mortality tables that extend the maximum lifespan of the policy to age 121 (in contrast to older policies that used a lifespan to age 100).
Whole life policies offer a non-forfeiture benefit which means that if the policy owner allows the policy to lapse, a large portion of the reserves (known as the cash value) will be returned to the policy owner.
Finally, whole life insurance is an asset class that can be utilized to store your wealth while you wait for opportune times to invest those reserves into other income producing assets.
Dividend paying whole life insurance provided by a mutual company verses a stock company is ideal.
Mutual vs Stock
Mutual life insurance companies are owned by policy holders whereas stock life insurance companies are owned by shareholders.
According to Nelson Nash, the reason that mutual companies are preferable is that they focus on keeping the policy holders happy, not stockholders, which makes a lot of sense.
One way this manifests is mutual companies may pay higher dividends to policy holders as a return of premium, versus a stock company that must focus on maximizing profits for stockholders.
Traditional Whole Life Insurance vs. an Infinite Banking Approach
Traditionally, most whole life insurance agents advise clients in such a way that emphasizes the death benefit of policies. If the death benefit is the focus, then the base premium of the policy will be the primary focus in terms of the cost of the policy. Emphasizing payment of only the base premiums results in a whole life policy with a maximized death benefit and extremely slow accrual of the cash value over the life of the policy.
In contrast, the infinite banking approach is to design the policy for early high cash value growth. This will include a strategy that emphasizes what is called paid up additions, typically through the use of a paid up additions rider. Simply put, paid up additions accelerate the accrual of early cash value within the policy.
