Why would a 35-year-old millennial purchase an old-school life insurance policy like those offered to their parents decades ago?
The short answer is that old-school Participating Whole Life Insurance policies are still an excellent value.
Participating whole life insurance policies offer a guaranteed premium and a guaranteed death benefit. They also offer a guaranteed cash value and growth of the cash value. Depending on which participating whole life policy is purchased the cash value growth may surpass the annual premium within three years!
The 35-year-old will spend $5000 a year (assuming they are in good health) on the $500,000 participating whole life policy. Yes, this is more out of pocket expense than other life insurance options but consider the benefits.
Of course, a much less costly option is Arizona term life insurance, but such policies offer no cash value or dividends.
The participating whole life insurance policy will have $16,000 in cash value at 5 years, and by 10 years it’s over $40,000 in guaranteed cash value. By year 19 the guaranteed cash value is greater than total premium paid. The insurance company may also pay a dividend each year which may be added to the cash value growth.
Most 35-year-old individuals may not be solely focused on retirement, and with participating whole life insurance they don’t need to be. At age 65 they may decide that paying $5000 a year in life insurance is no longer necessary as the kids are grown, and the house is paid for. The policyholder may elect “reduced paid up” and have a fully paid up and guaranteed $496,000 death benefit for the rest of their life. This will free up $5000 a year for retirement. Taking the dividend in cash at this point will add another $4000 or more a year for retirement.
Few policies offer guaranteed income and guaranteed death benefits like an Arizona participating whole life policy, and it is the type of life insurance every millennial should consider.