I got some eye-opening numbers from one of my clients recently that serves as a perfect example of why you should never buy whole life insurance, and instead just get good term life insurance and do your investing separately.
I created the video below to demonstrate how bad it really is, so rather than write it all out for you again, just watch the video below. But first, a couple comments...
The funny part is this: as you'll see from the video, whole life policies are a HORRIBLE way to invest your money, but there is a silver lining. That is, when you DO cash them in, at least it provides some cash that you can apply to paying off your debt, or to other goals if you are out of debt. So it feels like pennies, or dollars, from heaven in a way.
And the question about taxes always comes up...will that cash value I receive when I cash in the policy be taxable income for me?
The answer is usually a simple no, because the only part that is taxable is what would exceed the total amount of premiums that you paid in over the life of the policy. And like in this example in the video, it rarely does. Which is why it's so bad!!
So it's good that it's not taxable, but the reason it's not taxable is because it's such a HORRIBLE investment to begin with!! As you'll see in the video.
Bottom line...if you have one of these nasty policies, get a good term policy in place, then cash that puppy in, apply it to your debt or wherever you are in the baby steps, and never look back.
The lost opportunity cost of what you could have done with that money over the years will make you sick, but at least you can benefit from the small windfall now that you realize your mistake.