One financial expert says term life insurance may be all a normal consumer needs in terms of coverage, and recommends whole life insurance only for the wealthy.
John P. Napolitano, CEO of U.S. Wealth Management in Braintree, Massachusetts, says he considers wealthy consumers to be those who have the funds to cover their basic expenses, entertainment and other concerns into retirement. These are the best candidates for a whole life insurance policy with a savings component, and all other consumers would do best to stick to a term life insurance policy, which offers a death benefit and no savings component.
A whole life insurance policy may be best for wealthy consumers because it allows them a way to accumulate interest savings without tax ramifications. If they pass away before they can tap into their savings, their children will receive the sum tax-free.
"Cash accumulations inside whole life policies were such a great deal for tax planning that the [Internal Revenue Service] actually limits just how much you can invest inside these contracts. To make it work best as an accumulation tool, you need to contribute right up to the limit imposed by Uncle Sam," said Napolitano.
Consumers are advised to seek advice from a financial planner when considering the benefits of a whole or term life insurance policy.