By Dr. James M. Dahle, WCI Founder
Today’s post sprung out of one of those ideas that came to me at 4am in that state between sleep and wakefulness. Now, as I write the actual post in the light of day, the whole idea seems a little silly. Let’s go with it anyway and see what we can learn from it. If nothing else, I suspect the exercise will illustrate many of the problems with “investing” in whole life insurance. So, if you’ve ever considered the idea of investing in real estate vs. whole life insurance, this post is for you.
Investment Returns
Perhaps the biggest difference between these two investments is the returns. Insurance agents will balk at my even calling whole life insurance an investment, and I agree with them. But they’re usually talking out of both sides of their mouth on this point. First, they’ll say, “It’s not an investment,” and a few minutes later, they’ll encourage you to use it for your retirement savings. Guess what? That’s an investment.
At any rate, expected long-term returns on well-managed real estate investments are usually in the 8%-15% range. Guaranteed returns on a well-designed whole life policy held for decades until death are about 2%, and projected returns are currently about 5%. In my experience, the actual return usually comes in between those numbers, perhaps 3%-4% per year. Obviously, there are bad real estate investments and poorly designed whole life insurance policies that have worse returns, so I’m only comparing…
