When Whole Life Insurance is Not a Good Idea

Posted on June 25, 2009 and updated July 6, 2010 in Life Insurance Canada News 3 min read

Whole Life insurance offers fixed premiums, lifetime protection and the ability to have a paid up policy in a limited number of years, i.e. you’re still covered, but no longer have to pay. Whole Life plans also allow you to accumulate a cash value on a tax sheltered basis. Given these benefits, Whole Life insurance is a terrific fit for many clients. However, in the following situations, Whole Life insurance is inappropriate:

  1. When you have a temporary need for life insurance. There are many instances when you may only want life insurance for a short period of time, potentially to cover a business loan and/or line of credit. In these cases, Whole Life insurance isn’t a good idea because you would be paying higher initial premiums in exchange for premiums that remain level for life. If the policy is only needed for 5 years, you will no doubt be overpaying. The situation compounds itself because few Whole Life policies have any cash value in the first five years. Ultimately, you will be spending a lot of money for very little benefit.

  2. When you’re on a limited budget, but still have a large need for insurance. This can apply to a young couple with a limited budget. I remember meeting with a young couple; the husband was a bus driver and the wife was a stay-at-home mom. They had a mortgage and twin 3-year-old boys, so the need for insurance was significant, but they had a very tight budget. Unfortunately, their allotted insurance money was going towards a $500,000 Whole Life policy. It was a good policy, but a bad fit. You can find the right fit for your own budget with our free, online Needs Analysis Calculator.

  3. Clients that want a stripped-down version of life insurance. Some clients know exactly what they want–a bare bones life insurance policy for a stated term. In this instance, your answer is pretty straightforward, pick a term policy with an affordable premium from a reputable company. You should also make sure the policy you settle on is renewable and convertible. This will allow you to convert or renew your term policy without a medical, just in case circumstances change and you decide you need coverage beyond the stated term after all.

You can get a free instant quote for Term insurance at our Term Insurance Instant Quote Page and a Whole Life insurance quote at that corresponding Whole Life Instant Quote Page. If you have any other questions, please don’t hesitate to contact us at 1.866.899.4849.