Should a Single Male Buy Whole Life Insurance?

Should a Single Male Buy Whole Life Insurance? Should a Young Single Adult with No Kids Buy Whole Life Insurance?

Many Americans are routinely confronted with this sales pitch from captive home and auto insurance agents and life insurance agents.  But does it make sense for a single male, perhaps aged 28 to consider buying a whole life insurance policy?

Should I Buy Life Insurance if I am Single?

Do you Need Life Insurance if you Have No Dependents?

The Whole Life Sales Pitch for a Single Male:

Buy a Whole Life Insurance policy when you are young before your age drags down your health and your insurance rates go up and why you are still able to procure life insurance.  A whole life insurance policy will allow you to save money at the same time.   You will be able to have insurance for the rest of your natural life.   Your ‘savings’ in your life insurance policy can be used for retirement.  Your ‘savings’ can be used for your future kids college.

Why not get Life Insurance when you are young?   If you don’t buy it now, it may be too late

Should a Single Male Buy Whole Life Insurance?

To begin with this sales idea has numerous holes in it.   The first major issue is why exactly should single male buy whole life insurance?  Does he even need insurance?

Does he even need life insurance?

Let me ask you a question, if you are young with no kids and no wife and you were to buy a life insurance policy, whom do you make the beneficiary?   Its a head scratcher.  Do you name your brother, your parents, or your aunt?

The purpose of life insurance is to mitigate the risk of a premature death and provide financial assistance to those left behind.   The financial money can be used to pay off debts, a mortgage, etc.    But what financial purposed does a 28 year old man with no kids need the life insurance money for?   Does he leave the money to his parents?   Is it somehow needed to pay off his credit card bill?

The typical answer is that no, he does not currently need life insurance.  But he may… one day need life insurance so he should buy it now, so that he can somehow lock in his best health class?   If locking in your health class is your sole goal, I would advise you to consider a convertible term policy then.  But not, under almost any circumstances a whole life policy.

If he needs life insurance, how long does he need it for?

This is a partial list of types of life insurance policies for this client to consider:

• 10 Year Term
• 15 Year Term
• 20 Year Term
• 25 Year Term
• 30 Year Term
• 10 Year Term, Convertible
• 15 Year Term, Convertible
• 20 Year Term, Convertible
• 25 Year Term, Convertible
• 30 Year Term, Convertible
• 15 Year Return of Premium
• 20 Year Return of Premium
• 25 Year Return of Premium
• 30 Year Return of Premium
• Whole Life
• Universal Life
• Group Life Insurance through Work.
• Other forms of life insurance

One will notice that there are at least a dozen or more length types and kinds of insurance.  And this is an abbreviated list.   If you are 28 with no kids and not married, how on earth do you decide how long you need insurance for?   The answer will change if you have your first child when  you are 30 vs 40.   The answer will change if  you end up having four kids.  The answer will change if you choose not to have kids or not marry.

So how does a 28 year old person without children and without a real plan decide that they need life insurance for their whole life?

Does he Need to Save Money in a Whole Life insurance plan?

Getting back to the original question of the article, should a single male buy whole life insurance?  And why should he save money in one?

One of the tricks of good salespeople is to ask you a question to get you to incorrectly assume its premise is true.

“What type of Blue Forks do you Prefer?” as in, You need blue forks.

“What do you mean you don’t want to save money in whole life insurance plan?”  as in, Insurance and Savings go hand in hand… at least in this insurance agents mind.

However the idea that must save money with life insurance is a really old and antiquated concept.    Whole life as a savings vehicle was invented long before Roth IRAs, 529 Accounts, 401K requirement accounts, etc.   In certain situations Roth IRAs can be used for purposes other than retirement.  The so called savings accounts buried in whole life insurance plans are buried deep in policy language wrapped in fees.

If you are young and want to save money, consider starting off a small emergency savings fund and then consider investing in a basic retirement plan.

Future Budgeting Concerns:

What might be affordable when you are renting an apartment with no kids, may be entirely unavoidable when you are married with a two kids in a new house with a large mortgage.  That is really one of the central issues with buying a whole life insurance plan at the age of 28 or so.  How can you know what will be affordable to you when you are say 38?

Between the ages of 28 to 38 there are all kinds of new expenses that can come up with:

• Purchase of a new house
• Purchase of a new car
• A Wedding
• Birth of a New Child
• Married Spouse stops working to care for children
• Childcare Expenses
• Expenses to care for Parents
• Additional Savings for Retirement and or Children s College
• Starting of a New Business or New Career

After a potential whole life policy is around 15 years old or so, its possible that the cash value that very slowly builds up in it, may… be able to help out with some of these financial issues.  However, for the first ten years (IE from age 28 to age 41) almost all whole life policies will not have nearly enough money in them, relative to how much you have put in them, to be able to help with any of these issues.

How to Budget with Whole Life when you are young:

It is of course possible to budget out all of these future expenses when you are young and thereby plan accordingly.  How exactly would you go about that?

To begin with, you would want to sit down with a fee for service financial planner and understand how much money you will need and when.   Likely the first couple of pieces of advice you are to be given are the following:

• Max out the savings in your retirement accounts.
• Save 6 months of income in an emergency fund.
• Save the 20% necessary before you buy a home.
• Be judicious and careful with your expenses.

However, after these obvious savings goals and ideas, perhaps a simple list of possible future expenses and their anticipated costs could help you assess your financial needs.  In other words, if you think you are going to get married in the next ten years, how much do weddings cost?

Only after reviewing all of these with a financial planner would even consider a whole life policy.

Costs of Term vs Whole Life Insurance for a Single Adult with No Kids:

Single Male, aged 28:

One of the issues with planning out far into the future is to assume that anyone person will take any given path.  Even if it is the path that they themselves lay out.   Who is to say that this 28 year old will become a family man in the first place?   Assuming he does take a rather middle class turn, keeps a full time job, gets married, becomes the primary breadwinner and has 2.3 kids, what is to say that at that time he will even need the type of life insurance that was sold to him at this young age?What Kind of Life Insurance Will He need, If and When he needs it?

Will the Investment Savings in Whole Life Materialize as Sold?

This is the classic argument against all of whole life and universal life insurance policies and is not specific to this case.

Will a Whole Life Insurance policy really help me save money?

It is a simple question with numerous retorts.   The simplest answer is that Whole Life Insurance, if you can afford it, and if you can keep it for life, will help you save money.  However, it rarely if ever beats Buying a Level Term Life Insurance Policy and Saving the difference in Tax Free, Tax Differed, and Taxable accounts in the long run.

Will it materialize AS SOLD though?   Well that depends on how it is sold.  If you have yourself a good insurance agent who is honest and upfront, its possible for it to live up to its billings.   If you run through all the various options for non payment on several years than perhaps.   However, the life insurance industry is ripe with outrageous claims by insurance agents.  If you are buying a whole life policy for any reason other than lifetime insurance, Id suggest that you research your own facts.  Put together your own spreadsheet.  Run your own numbers.

Playing with Fire Buying Whole Life Insurance When you are Young:

Is Whole Life Insurance right for you?   Perhaps, but until you are well established and have saved lots of money.  I can not see the value of buying an overpriced life insurance policy such as whole life insurance until you have planned out your life.  The costs are too high and the rates of cancellation are just too high to justify it.  About 40% of all people that buy whole life insurance policies cancel them in the first ten years.   Buying at a young age, before you even need life insurance is playing with fire.

Look at the above numbers again and compare the 30 year term vs the whole life policy, both of the same $250K benefit amount.

and

My calculator says the difference in cost is $1,448 per year or $43,440 over the course of the 30 years.  That will take you till you are 58 years old.

If you feel that you must have Life Insurance, Consider two Options:

• A Long Level Term Policy, such as a 30 year.
• A mid range Convertible Term policy, such as a 20 year convertible.

Why are these the best two options?  In answering should a single male buy whole life insurance I believe that we have set the stage to be very cautious of insurance agent’s claims.   As we have discussed there is a bit of legitimacy to locking in low life insurance rates when you are young and healthy.  However locking them in with whole life insurance is probably a bad suggestion.

Buying a 30 year term policy for this male candidate could make sense because of its low price and long duration.

Buying a 20 year convertible policy could make sense because of its medium term and its ability to convert it to a whole life policy at a later time.  Of course ten years into the convertible term life policy, you may realize that buying a whole life policy is indeed a poor decision.

Are there Any Young People that you Would Suggest Buying a Whole Life Policy?

Yes.

Yes there are.

But these situations are pretty rare.  There are other examples out there, but here are a few:

1. To Fund in a special needs trust for your brother, sister, etc.
2. For an extremely wealthy individual.  Say a young woman with a net worth at age 28 of about $3 Million Dollars.
3. For someone who has an incredibly high annual income and is already filling up all of their retirement accounts, paying down their house, and has numerous financial reserves already set aside.  Perhaps a young woman making in excess of $600,000 per year and that income is expected to continue indefinitely.
4. As part of a complex lawyer created trust to assist in avoiding probate and estate taxes.  This person may be the same from points two or three.   This is again a very wealthy individual.
5.  For someone that does not qualify for term life insurance and really wanted to have it.  This person, may… wish to purchase a limited small dollar guaranteed issue policy, say for about $25K.  These guaranteed issue policies are technically a type of whole life insurance.

Who Does Not Need Life Insurance?

Lots of people do not need life insurance.   Some obvious some not.

The obvious candidates that do not Life insurance:

For older Americans with no kids and no spouse I can not see much of a need for life insurance.  Nor would I envision life insurance being needed for people that cannot afford it.  Certainly one needs to have a job or some other means of income to consider buying life insurance.  If someone can’t afford the first years premium, then life insurance made be needed but deemed affordable.   This of course brings up the eternal life insurance question that if someone needs life insurance but cannot afford it, do they actually still need it?

The less obvious candidates that may not need Life Insurance:

If a family is extremely wealthy and have saved all the money they will need for their lifetime, perhaps life insurance may not be necessary.   Young folks that are convinced that they do not wish to be married or have kids, probably should consider holding off buying life insurance.   Older clients that have their kids moved out of the house, probably are not the best candidates for life insurance either.

However, each families situation is unique.  Its not easy to classify families as either needing or not needing life insurance.   Its best to sit down and discuss with a financial planner or life insurance agent your specific needs.

I Won’t Sell You an Overprice Insurance Product that You Neither Need Nor Want

Thanks for reading Should a Single male buy whole life insurance?

Should you have any questions, please feel free to reach out and inquire.