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In financial circles, I’m often asked why I continue to pay premiums on my whole life insurance policies rather than investing that money in potentially higher-yielding alternatives like stocks, real estate, or mutual funds. This question reveals several common misconceptions about whole life insurance and its role in a financial strategy.
The question itself presupposes that I don’t invest in other asset classes, which is untrue. Like many financially savvy individuals, I maintain a diversified portfolio that includes various investments. My whole life insurance isn’t an alternative to these investments—it complements them by providing unique benefits that other financial vehicles cannot.
The fundamental misunderstanding stems from viewing whole life insurance as merely an investment rather than what it truly is: a self-compelled savings vehicle with property characteristics that provides death benefit protection and living benefits through access to cash value.
When people suggest I could earn higher returns elsewhere, they’re often comparing apples to oranges. Whole life insurance serves multiple purposes at once—protection, guaranteed growth, tax advantages, and liquidity—that can’t be replicated through any single alternative investment. It’s not just about the rate of return; it’s about the benefits and guarantees that come with the product.
Critics often compare premium payments to a policy’s cash value and label this as a “return on investment.” This comparison misses the mark entirely. The cash value in a whole life policy shows equity built in the policy’s face value—not investment returns on premium dollars.
Think of whole life insurance like a home mortgage in reverse. When you make premium payments, you’re building ownership in the death benefit. Part of each premium payment purchases a portion of the death benefit that becomes fully paid up, never requiring additional premiums. This ownership is reflected in the policy’s cash value.
Whole life insurance comes in various forms. Some policies are completely paid up with one large initial premium (single premium whole life). Others can be paid up over a ten-year period (ten-pay whole life). And some accept premium payments throughout the insured’s lifetime. Regardless of the payment structure, whole life insurance guarantees coverage for life, culminating in a death benefit payout to beneficiaries.
Many financial advisors recommend “buy term and invest the difference” as a superior alternative to whole life insurance. This recommendation focuses on a limited timeframe—usually when the insured is young and healthy.
What this advice fails to address is the long-term picture. Term insurance premiums increase with age, while whole life premiums remain fixed. By age 80, the cost of term insurance often exceeds the death benefit itself. My own term insurance at age 64 would cost approximately $31,000 annually to match my whole life coverage. After 20 years, this would skyrocket to nearly $1.4 million annually, increasing to over $2.6 million per year by age 90.
In contrast, my whole life premiums remain fixed at a fraction of these costs, with guarantees that they’ll never increase. Term insurance builds no equity—it’s akin to renting rather than owning. Some more expensive term policies offer a return of premium at certain ages, but they never develop cash value like whole life insurance does.
A young person who purchases a ten-pay whole life policy with annual premiums of $10,000 for ten years will have a death benefit of approximately $1.5 million at age 80. The cost to maintain equivalent term coverage over the same period would exceed the death benefit itself, making it financially impractical.
Proponents of “buy term and invest the difference” base their arguments on projected stock market returns of 8-12%. The actual returns achieved by average investors tell a different story. Studies have shown that the average investor earns around 2.1% over 20-year periods.
Jack Bogle, founder of Vanguard Mutual Fund, noted that over 50 years, average investors earned approximately 2% after accounting for fees, taxes, and inflation—despite historical market returns of 11.3%. This dramatic difference between market returns and investor returns stems from timing errors, emotional decision-making, and various investment costs.
Whole life insurance provides guaranteed growth that has historically outperformed what average investors actually achieve. My policies have grown at a consistent 2.5-4% annually, tax-deferred, without the volatility or anxiety that comes with market investments.
Having witnessed multiple market corrections throughout my life, I’ve seen friends and colleagues lose 30-80% of their investment earnings during market crashes. These losses require time to recover—time that becomes increasingly precious as we age.
The time value of money formula [PV = FV/(1+r)^(n+t)] includes time as a critical component. Losing money today means permanently sacrificing potential future gains. My whole life insurance cash value is protected from market losses, allowing compound growth to work uninterrupted year after year.
Will Rogers famously stated, “I’m not so much interested in the return on my money as I am the return of my money.” This philosophy resonates with me. My whole life insurance keeps my money safe and provides opportunities to leverage it while it grows, regardless of market conditions.
Beyond the guaranteed death benefit and cash value, whole life insurance has increased my free cash flow—the money remaining after all expenses, debt, and liabilities have been paid. This metric, championed by Amazon founder Jeff Bezos, focuses on actual available capital rather than theoretical investment returns.
Free cash flow provides the flexibility to capitalize on opportunities without liquidating other investments or incurring debt. This approach has gained widespread acceptance among investors because it’s not subject to estimates or assumptions—the results are transparent and verifiable.
Investors initially mocked Bezos for prioritizing free cash flow over profits, but his approach was vindicated when Amazon began showing profits in 2004. Since then, investors have gravitated toward this metric because it’s not vulnerable to accounting manipulations or overly optimistic projections.
Cash is king, but holding excessive cash can erode purchasing power due to inflation and taxes. My whole life insurance helps address this concern. For example, the $10,000 annual premium I pay on my first policy (purchased 19 years ago) would be equivalent to only $6,267 in today’s dollars due to inflation. However, that same premium now generates $21,000 in additional cash value—equivalent to $13,162 in purchasing power from 19 years ago. My cash value has effectively outpaced inflation over this period.
This inflation-beating growth provides peace of mind that my savings will maintain purchasing power over time, without the volatility associated with market investments. It creates a solid foundation upon which I can build more aggressive investment strategies if desired.
One of the most powerful aspects of whole life insurance is the ability to access policy loans using cash value as collateral. When I take a policy loan, my cash value continues to grow as if the loan had never occurred. This allows me to leverage the same capital multiple times, creating additional wealth-building opportunities.
Over the past 19 years, I’ve used policy loans to finance major appliances, vehicles, business equipment, real estate, home improvements, education expenses, and more. When I use policy loans to finance these purchases and repay them, I recover the cost of these items while my cash value continues to grow at 2.5-4% annually. This process has increased my free cash flow and even enabled me to become a hard money lender.
The ability to borrow against my policies without interrupting their growth has been instrumental in expanding my investment activities. I can seize opportunities quickly without liquidating other investments or worrying about market timing. This has proven valuable during market downturns when having access to capital without selling depreciated assets is crucial.
As a policyholder in a mutual insurance company, I receive dividends classified by the IRS as a return of premium for tax purposes. These dividends represent my share of the company’s profits. By directing these dividends to purchase additional paid-up insurance, I increase my death benefit and cash value without additional premium payments.
This process creates a self-reinforcing cycle: more paid-up insurance leads to higher cash values, which in turn generates larger dividends that purchase more paid-up insurance. Over time, this enhances the policy’s overall performance.
Dividends aren’t guaranteed, but many established mutual insurance companies have paid them consistently for over a century, even through the Great Depression, world wars, and various financial crises. This track record provides confidence in the long-term stability and performance of whole life insurance from reputable providers.
Accessing policy loans is remarkably straightforward—no credit checks, application processes, or proving ability to repay. My paid-up insurance fully collateralizes the loan with just my signature. Within days, funds are deposited into my account, allowing me to capitalize on opportunities that might otherwise pass by while waiting for traditional financing.
This accessibility has proven invaluable during both emergencies and opportunities. When unexpected expenses arise or attractive investments present themselves, I can access capital quickly without disrupting my financial plans or incurring high-interest debt. This peace of mind is difficult to quantify but immensely valuable.
As policies mature, they offer additional flexibility. For some of my policies, I’ve chosen to stop making premium payments because the cash value is now growing faster without additional contributions. This becomes possible once there’s sufficient paid-up insurance to keep the policy in force without terminating.
In these cases, I reduced the death benefit to eliminate any face value that wasn’t fully paid up, then ceased premium payments. The cash value continues to grow annually, and dividends purchase additional paid-up insurance, increasing death benefit and cash value without further out-of-pocket expenses.
This flexibility allows me to adapt my financial strategy as circumstances change. As I approach retirement, I can redirect premium dollars to other purposes while maintaining the benefits of my policies. The ability to adjust my financial approach without abandoning existing progress is a big advantage.
Perhaps most importantly, I continue paying my whole life insurance premiums because I love my family and want to provide them with a tax-free death benefit when I’m gone. This creates a legacy that goes beyond what I could accumulate through traditional savings and investments alone.
Businesses use this same concept to fund buy-sell agreements, employee benefit plans, and succession planning. Banks utilize Bank Owned Life Insurance (BOLI), while corporations employ Corporate Owned Life Insurance (COLI) for similar purposes. These entities recognize the unique value proposition that whole life insurance provides.
The tax-free nature of the death benefit makes it efficient for wealth transfer purposes. Unlike most other assets, life insurance proceeds generally avoid income tax, making it an effective tool for maximizing the financial legacy left to beneficiaries.
Those who advocate “buy term and invest the difference” based solely on potential investment returns are missing the bigger picture. While many believe they can consistently earn higher returns elsewhere, experienced investors recognize that doing so reliably is infrequent and unusual.
A well-designed whole life insurance policy offers guaranteed growth, tax advantages, protection against market volatility, access to capital, and a permanent death benefit—benefits that cannot be replicated through any single alternative financial product.
When properly structured and integrated into a financial strategy, whole life insurance serves as a cornerstone that enhances financial stability and growth potential. It’s not an either/or proposition between insurance and investments, it creates synergy between financial tools.
My decision to continue paying whole life insurance premiums isn’t based on a simplistic comparison of investment returns. It reflects an understanding of how whole life insurance functions as a financial tool that provides protection, liquidity, guarantees, and opportunities for wealth creation.
By integrating whole life insurance with other investments and financial strategies, I’ve created a system that builds wealth while managing risk. The question shouldn’t be whether to choose whole life insurance or investments, but rather how to strategically combine these tools to maximize financial security and growth potential.
For those seeking greater prosperity and financial peace of mind, understanding the true value of whole life insurance beyond conventional wisdom is essential. Whole life insurance helps to create a financial fortress that weathers economic storms while providing ongoing opportunities for wealth creation.
Tomas P. McFie DC PhD
Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
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