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Disadvantages of Whole Life Insurance.

Fact Checked by Jason Herring & Barry Brooksby
Licensed Agents & Life Insurance Experts.
Insurance and Estates, a strategic life insurance provider composed of life insurance professionals, is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.
disadvantages of whole life insurance

Here at I&E, we spend a lot of time talking about some of the key advantages of purchasing whole life insurance policies.

Particularly if…

You’re young and healthy or you have enough savings to purchase a cash value whole life insurance policy with a paid up additions rider.  This is because unlike a term life insurance policy which is mainly purchased solely for the death benefit, a cash value whole life insurance policy can be used for a variety of other purposes once they have built up cash value.

That said…

We also understand that unless we explicitly discuss exactly what the disadvantages are in owning a whole life insurance policy, folks will generally not take what we have to say seriously or always believe that we’re simply too “one sided”.

But the reality is…

Nothing could be further from the truth.  After all, because our agents are trained to offer a variety of different life insurance policies including both whole life insurance and term life insurance, at the end of the day, it really just comes down to what type of insurance will best meet your needs and how much you feel comfortable paying for your insurance.

This is why…

We don’t hesitate discussing what the Pros and Cons are of any one particular type of life insurance because as long as our clients fully understand what their options are, we’re completely satisfied with whatever type of life insurance they believe is “BEST” for them.

Which brings us to…

Why we wanted to write this article discussing some of the disadvantages of whole life insurance.  Particularly the three main disadvantages that seem to be brought up over and over again anytime someone wants to critique an agent or agency for offering these types of life insurance products to their clients.

Three Main Disadvantages of Whole Life Insurance

  1. Costs
  2. Commissions
  3. Unnecessary Your Whole Life

Now because we here at I&E proudly like to make whole life insurance policies available to our clients, in addition to other life insurance products such as term life insurance and guaranteed issue life insurance products, we want to take a moment and discuss each of these disadvantages of whole life insurance and provide our “two cents” regarding them.

So, without further ado, let’s dive right in.

  1. Costs

There’s no getting around the fact that whole life insurance rates are going to cost quite a bit when you compare whole life vs term life.

In fact, one should probably expect that a whole life insurance policy will cost anywhere between 5 to 10 times more than a term life insurance policy.


May be a deciding factor when it comes to determining which type of life insurance you want to purchase.  So, the question that we would then want you to ask yourself is…

“Why does whole life insurance cost so much more than term?”

After all, if you purchase a $250,000 30 year term life insurance policy, and a $250,000 whole life insurance policy, they’re both going to pay out $250,000 in the even that you die, so why does the whole life insurance policy cost 5 to 10 times more that the term life insurance policy?


It could be that because only a tiny percentage of folks who can qualify for a term life policy will actually die during the term period in which the policy is in force.

“That could have something to do with it!”

And while we would love to tell you the exact percentage of term insurance policy holders who actually die while their policy is in force, these numbers are not something that insurance companies like to share with the general public, which is why most insurance experts are only able to “theorize” what the percentages are.  That said however, most agree that the numbers are pretty low, usually less than 3%.


Should one decide to purchase a $250,000 whole life insurance policy, the insurance carriers know that they will be on the “hook” for that amount provided that the insured continues to make payments and keep his or her life insurance in place up to the day they die.

And when someone chooses to surrender whole life insurance they are going to get back their cash surrender value, versus term life where there is no cash value.

  1. Commissions

As a general rule of thumb, the commissions earned by a life insurance agent will be higher when they sell a whole life insurance policy than when they sell a term life insurance policy.


It’s safe to say that there are probably some life insurance agents out there that “push” whole life insurance policies over less expensive term life insurance policies for their own selfish reasons.

That said…

Just because there are a few “bad apples” out there doesn’t mean that you should automatically assume that a whole life insurance policy might not be right for you.  It just means that you need to be more careful with “who” you decide to work with and make sure that “your” needs are being met not your “agents”.

One way you can do this is to ask yourself:

  • Does my insurance agent understand my insurance needs?
  • How many options have I been presented?
  • Has my agent adequately explained these options discussing both the pros and cons of each?
  • Does my insurance agent seem to have an “agenda” or “preference” in which type of life insurance policy is right for me?

Chances are, if you don’t like the answers you give yourself to these questions, you’re probably working with the wrong agent and it would behoove you to give someone else a call!

  1. Unnecessary for your Whole Life.

This argument basically states that because, for most clients, one’s “insurance needs” will typically reduce over time, owning a whole life insurance policy with the same death benefit for your entire life is a waste.


In theory, we here at I&E will agree with the fact that for most folks ones “death benefit insurance needs” will decrease as one ages, but that doesn’t negate the fact that there are some really strong benefits of whole life insurance later in life.


Please bear with us for a moment because if one is able to fully understand why the “critiques” above may be incorrect, then you’ll be able to understand why in some cases a whole life insurance policy can make sense.  It may not be “right” for you, but at least you’ll be able to understand why its silly for some financial advisors to say that there is never a reason to purchase a whole life insurance policy.

Two reasons why the argument that whole life insurance policies are unnecessary over time is FALSE

  1. Your insurance need may not change as you age.

The first problem with this argument is that it assumes that everyone’s insurance needs will decrease over time.  It assumes that over time, the reasons why an individual purchases an insurance policy will go away.

For example…

Over a 30 year term life insurance policy, chances are:

  • Your kids will grow up, complete their schooling and get a job.
  • Your mortgage may finally get paid.
  • And with a bit of luck, you will finally retire and your family will no longer need to worry about any lost income in the event that you died prematurely.

Or in other words, the reasons why you purchased a life insurance policy 30 years ago have now resolved themselves and you no longer require a life insurance policy.

But what if…

One of these insurance needs hasn’t disappeared?

  • What if you had a child with special needs who wasn’t able to move out of the house?
  • What if you suddenly find yourself taking on the primary caretaker roll of a grandchild?
  • What if you still have 10 more years on that mortgage?
  • And many other viable reasons for still needing life insurance.

In cases like these…

Even though your term life insurance policy has expired or is nearing completion, your insurance needs are still quite strong?  What then?  Apply for a new policy?  What happens if you’re no longer able to qualify for coverage?  This is where things can become complicated quick quickly and when the idea of not owning a whole life insurance policy can seem quite unpleasant.

  1. Whole life insurance is more than just a death benefit policy.

The second reason why stating that a whole life insurance policy is unnecessary over time is FALSE is because, when used as a financial savings mechanism, the benefit of owning a cash value whole life insurance policy can be enormous and particularly beneficial as one ages.


We’re going to want to “revisit” this idea of using a whole life insurance policy as a savings mechanism in a moment however we’d prefer to go into this idea in greater detail while addressing one of the most common complaints or “so-called” disadvantages of whole life insurance which is that they are horrible investments.

Whole Life Insurance Policies are Terrible Investments.

A common phrase that you’ll often hear critics of whole life insurance policies state is that because…

“Term life insurance policies cost so much less than a whole life insurance policy, an insured would be much better off financially by buying term and investing the difference

And while…

On face of things, one might at first find it difficult to argue with this logic particularly if a client actually did decide to “invest” the price difference between a term life insurance policy and a whole life insurance policy each and every month!


Here is where this argument falls flat.  You see, while we here at I&E would agree that a client may be able to find better “investments” elsewhere, we’re not suggesting that an individual use a cash value whole life insurance policy as an investment!


When we here at I&E recommend that a client consider possibly purchasing a cash value whole life insurance policy, we present it to them as a…

“Forced Savings Mechanism”

Earning a much higher return that one would expect to earn from a traditional savings account in either a bank or credit union.  Which is great because over time this will allow them to take advantage of many of the financial strategies pioneered by Nelson Nash in his book titled Becoming Your Own Banker.

You see…

When utilized in this manner, a cash value whole life insurance policy can be used to provide one with:

  • Tax free loans,
  • Tax deferred guaranteed cash value growth,
  • Improved cash flow and liquidity,
  • Guaranteed death benefit
  • Etc.

Allowing one to really put their money to work.


We’ll be the first to admit that we’ve covered a lot here especially if this is the first time that you’ve really began comparing the differences between term life insurance vs whole life insurance which is fine, we’re not expecting you to be an expert on any of this.

We’re also not…

Expecting you to want to run out and want to purchase a whole life insurance policy today.  All we’re expecting you to be is SKEPTICAL.

Skeptical of anyone…

Trying to “sell” you on any one particular type of life insurance coverage.

Instead, when your speaking with your life insurance agent, you should feel like they are simply trying to “facilitate” what you’re trying to achieve.  They should answer all of your questions, attempt to give you their best “guess” on which insurance companies might be the “best” for you and they should make you aware of how the whole process of applying for life insurance works.

If they don’t…

Well then, chances are you didn’t call I&E.

So, what are you waiting for?  Give us a call today and see what we can do for you!

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