Why Whole Life Insurance Could Make Sense if You Struggle With Savings

A man sitting at a table next to a window in a cafe and looking outside thoughtfully.

Image source: Getty Images

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Despite the added expense, whole life insurance has its benefits.

Key points

  • Whole life insurance provides coverage that doesn't run out.
  • It also accumulates a cash value that could work to your benefit.

Buying life insurance is an important step to take if you have people in your life who depend on you financially, or who might get hurt financially if something were to happen to you. Now, when it comes to purchasing life insurance, you have choices. You can buy a term life policy, which will cover you for a preset period of time, or you can buy whole life insurance, which will cover you as long as you live.

The downside of buying whole life insurance is that it can be prohibitively expensive -- far more expensive than a term life policy. In spite of that, if you're someone who struggles with saving money, you may want to opt for a whole life policy for one big reason.

When you're effectively forced to save

Many people don't need life insurance forever, and so a more cost-effective term life policy makes sense. But whole life insurance doesn't just cover you forever -- your policy also accumulates a cash value. And that's money you can either cash out at some point down the line, or borrow against when the need arises.

In fact, it's easy to look at whole life insurance as a type of forced savings. That's because the money you're paying into your premiums is money you aren't spending elsewhere.

If those premiums didn't exist, though, perhaps you would be spending that money and getting nothing for it in return. If a person really can't motivate themself to save elsewhere, like in a regular savings account, then buying whole life insurance may be a good choice -- especially since it also offers coverage that doesn't run out like term life insurance.

That said, there's a downside to using whole life insurance as a means of savings. For one thing, you might end up having to surrender your life insurance policy if you reach a point when you can't keep up with your premium costs. And if you surrender your policy early on, its cash value could end up being pretty low.

What’s more, many whole life insurance policies come with surrender charges for policies that are dropped early on -- often within 10 to 15 years. Those charges can eat away at whatever savings you've accumulated via your policy's cash value.

A better way to save

It's important to have money on hand for emergencies, but a whole life insurance policy really isn't your best bet in that regard. A more ideal route to take is socking money away in a regular savings account.

That said, if you're looking to build longer-term savings, a whole life insurance policy may be a reasonable way to go about it if you're truly convinced that it's the only way to force yourself to save. But before you make that choice, you may want to look at other options that work sort of like forced savings.

If your company offers a 401(k) plan, for example, you can sign up and have money deducted from your paychecks off the bat for retirement savings purposes. Granted, no one is forcing you to make those contributions, but they'll also be taken out of your earnings before you have a chance to spend that money.

You can also find an IRA with an automatic transfer feature that achieves the same effect. That way, you get the benefit of ongoing savings without having to be locked into costly premiums that may, at some point, drive you to dump your policy altogether.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

Our Research Expert