Whole Life vs Term Insurance
Wed, 07/02/2008 - 22:35.
in
I frequently get asked from friends if I would go for term or whole life insurance. They mostly want to know, what is the difference between the two?
First of all, whole life has an investment component built into the premiums. A certain portion is invested for you in a pool of investments decided by the company and a cash or surrender value builds as the years go by.
The theory is you get life insurance PLUS you’ll have a nice retirement nest egg at the end of the day.
With term insurance, you are only paying for the insurance aspect so it’s not really an investment vehicle.
Do you pay extra for this investment feature?
Definitely - I did a quick check on the web to check on the premiums – a $500,000 whole life guaranteed policy - and they ended up being anywhere from $300 to $800 per month
I recently did a similar check on premiums for term life insurance, which ended up being between $68 to $105 per month. This is a difference of several hundred dollars or more per month!
Which one would I go for?
Term insurance for me is the clear winner. Whole life insurance is just too expensive and I don’t think the investment portion is worth it.
Term life insurance is cheaper because there is no investment component – you are simply paying for the insurance portion during the term you’ve agreed to.
I would rather take the difference in premiums – which is at least a couple of hundred dollars per month – and invest it on my own.
Another issue with whole life is that most of your ‘investment component’ goes to paying commissions in the early years of the policy. You have to hold the policy for many years to build up any cash value.
Now, I have no problem with insurance agents making money off me, but I just don’t believe the investment potential is worth it.
Some would argue it’s forced savings but I think it’s just as easy to set up an automatic plan with an investment company.
With whole life you’ll also have to make sure the company is going to be financially viable when you are finally ready to retire. If the company goes broke and disappears, there goes your retirement fund.
You’ll want to get sound advice from a professional to assess your personal situation, especially if you’re wealthy and have complex financial arrangements.
Just make sure your expert isn’t being paid by the insurance company.
Trackback URL for this post:
http://www.thestrump.com/trackback/88
Copyright 2008-10, SIZEABLE MEDIA, INC
PRIVACY POLICY
SITEMAP
Receive new posts by RSS
life insurance
This is great information. I always wondered what the difference was between the two. My financial adviser told me to get Short term Disability but said I shouldn't worry about life insurance. I'll have to ask him if he was referring to Life insurance or Term Life Insurance. Thanks for sharing.
Life Insurance
Term Life is life insurance - it's set for a certain period of time - 10 years or more, depending on your contract.
Short term disability is something different. If you get very ill and can't work, this would come in handy.
It's a good idea to have both - your adviser may have said not to worry about Term Insurance if you don't have any people that depend on you (kids/family).
Whole Life vs Term Insurance
One of the main factors behind deciding what type of insurance to opt for is deciding on how much coverage you will require on your insurance policy. To do this, there are several questions you need to ask yourself – how much will you need for funeral expenses and burial costs? Do you need to pay off any debts, mortgages and estate taxes? Do you have children whose education you have to look after or any dependents whose expenses are your responsibility? How much money do you need to look after your family in your absence? How much does your income contribute to the household finances? Once you have calculated an estimate with the professional help or by using one of the many online calculators available, you will reach a figure that will help you decide how much coverage you should opt for.
Answering all these questions will also give you a good idea about your financial priorities. Based on this and the personal decision on how much you are willing to pay for a policy, you can then make the choice between a term life insurance policy and whole life insurance. For more information on the different types of life insurance available, you can check out AccuQuote.com.
Denise at AccuQuote
Disclaimer: I work for AccuQuote and this is my personal opinion.
Term vs Whole?
I agree with what you said as being true for a younger and healthier person. If you are looking for a few $100k of coverage, term is probably your best option. But whole life still has uses. It does not expire so it will still cover a person in retirement years. It may be the only type of life insurance an older person can get. And it can be used for a life settlement for seniors.
But because it is more expensive, most people look for a much lower coverage amount - i.e. a senior just wanting a big enough policy to settle final expenses like funerals and debts.
http://www.termvswhole.com/term-vs-whole-life/term-vs-whole-life-insuran...
Post new comment