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First Person: I Bought a Whole Life Insurance Plan in My 20s

I did something that financial planners sometimes discourage when I was in my late twenties–I bought a whole life policy from a highly rated insurance company. Term policies have no cash value, but will pay out to your beneficiaries when you die. Whole-life policies cost a lot more, but they grow cash value.

Term Policies and Whole Life Policies

Financial gurus often preach that for the less money, a term policy can be purchased. The gurus then state that the difference between the cost of the whole-life and term policy should be invested in another, higher earning vehicle, like a stock mutual fund. But I know I wouldn’t have the discipline to figure out the difference and transfer the money. A monthly bill for my whole-life policy is easier to fit into my life.

My whole life policy’s face value was for $60,000, but at death is now worth $61,439 due to dividends reinvensted in the policy–not a huge sum, by any means. But it does ensure that when I die, a burial can be purchased with some cash left over for my heirs.

Borrowing Against Cash Value

The main reason I am glad I bought the policy is that whole life policies allow you to borrow against the cash (or cash out the policy entirely). Twice I have borrowed from the cash value to purchase something I really needed–a good vehicle to ensure I could get to work and schlepp my kids around. The first vehicle I purchased this way was a Mazda mini-van. Recently divorced with a shaky credit score, I knew that money has slowly built up in my insurance account. I accessed it without answering awkward questions from a loan officer. The second time I accessed it was about two years ago, when I unexpectedly totaled my Suzuki Sx4. I didn’t want to hurt my credit score as I was planning on refinancing my home.

Now, I also have gotten consumer loans for cars in the past, but my whole life policy doesn’t make a mark on my credit score. I paid the loan off on a regular basis, but always knew if disaster struck, I could skip a payment. After all, I was borrowing from myself.

Years after my investment, the cash value of my account is $13,202.00, my second loan is nearly paid off, and my almost-new car sits in the driveway. The growth in my value due to dividends is not currently taxed. My credit score remains high, my burial costs will be covered, and some money is still there for my heirs.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you’d like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

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