- The premium may be unaffordable for persons of limited financial resources
- Younger individuals are often not able to purchase the amount of death benefit needed and will often be underinsured if they choose whole life insurance as their only life insurance coverage
- Interest paid on policy loans is generally nondeductible
- If a policy loan is taken it reduces the death benefit
- Lifetime distribution of cash values are subject to income tax to the extent attributable to gain in the policy
- Surrender of the policy within the first 5-10 years may result in considerable loss, because surrender charges
- Erosion of purchasing power is present with whole life insurance because of fixed-dollar savings medium, and it is adversely affected by inflation
- Heavy front-end expenses accompany whole life policies
- The overall rate of return on the cash values inside the traditional whole life contract has not always been competitive in a before-tax comparison with alternative investments
- It is often impossible for a policyholder to determine the true rate of return in a whole life policy since the mortality and expenses deducted from the premium are not disclosed
In our last blog post, we discussed the advantages of whole life insurance, now the disadvantage of whole life:
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