Term vs Whole Life Insurance?

Question

So for all of you Insurance experts- I have some questions for you!

I understand more about term insurance than I do about whole life. I understand that if I qualify that I can get a Term life insurance policy for a certain amount - for a certain number of years.

BUT with Whole life do you pick your policy amount - say a million or 200,000? I've read it is like a bank account. But I don't understand it!

With term insurance you must qualify by doing their health exam every term and answer their questions every year right?!

But is it true that with whole life once you take the initial health exam then what? As long as you pay the premiums every month you are all good?

What worries me with the term life insurance is say I have a 20 year policy, but I find out that I have cancer during the 19th year they will not renew my policy right? But if I do have whole life then it does not matter because I am locked in as long as I pay my premiums, even though it's more expensive.

Answer 1

Insurance biz made easy gave a good answer.

Once you own an insurance policy (that is, the insurance company approved your application and you paid the premium), you have life insurance coverage and the only way an insurance company can drop the coverage is if you do not pay the premium.

Once you own the policy -- any type of policy (term, whole life, universal life, variable life), if you contract a disease or take up a hazardous occupation, the insurance company will have to pay if you die (as long as you paid the premiums).

I find that most people will do very well to have both term and permanent (whole or universal) life insurance.

You have to determine if you (and your survivors) will have enough money to pay all of your debts and obligations (to spouse and children) throughout your life.

Do you know what debts you will have (mortgage, credit card etc) throughtout your life?

Do you know what your family make up will be?  (spouse, children, grandchildren)?

Will any of your family be dependent (spouse, children, parents)?

Will you stay more healthy than the average person?

Will you want to leave money to a charity or college after you die?

I could go on but I suggest that you sit down with a financial planner and discuss ALL of your options in regards to insurance - life, disability, liability etc.  See how insurance fits in to your overall financial goals.

If you meet with someone with whom you don't 'connect,' find another.

Expect to reveal all of your goals for your life - family, career, retirement etc.  Also expect to pay a fee.

Good Luck.

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Answer 2

Whole life is like a bank account, where the bank takes 75% of what you put in.  NOT a good savings/investment vehicle.

Yes, you pick your policy amount for both term and whole life.  Yes, you have an exam at first, and no, you don't need an exam when your term is up, unless you want to try to get a lower rate.   You can buy a term policy for up to 30 years a term.  You can buy a "guaranteed renewable and convertable" endorsement on your term policy, which means you'll be able to renew when that term is up (usually 20 to 30 years) WITHOUT an exam.  Or, you could convert it to whole life, WITHOUT an exam.

Term is cheaper.  Don't be sold on gimicky savings/investments.  Decide exactly what you want the policy to DO for you, and buy the product that DOES it.  

Whole life, variable life, universal life, they make a LOT more commission for the agent, than term life.  That's why so many agents like selling them.

Answer 3

You have some facts correct.

With term once you get approved for the policy whether you apply for a 10, 20 or 30 year term you never have to answer questions again. Once approve you are covered for the term you purchased.

You are correct with the problem of having term, once it expires you may not be able to get additional coverage.

With cash value life once the policy is issued and you continue to pay your premiums it can remain in force your whole life and you can pick the amount of insurance.

The cash value is a side effect of having the insurance last your entire life with level premiums. You can think of it this way, cash value life is a way for you and the insurance company to work together to insure that your family will have a certain amount of cash at your death. If you die early the insurance company provides the entire death benefit. If you die 30 years from now the cash value could provide half the death benefit with the insurance company providing the other half. If you die at age 100 your cash value should equal the death benefit.

Most people with families (children) could use a combination of term and cash value. Mostly term coverage that will last until the children are grown and independent and a smaller cash value policy that will remain after the term expires.

I suggest you look for a local broker that can help you sort through the different companies and plans available. You can use yellowpages.com to search for life insurance brokers in your area.

You can call your auto and home agent they specialize in property and causality insurance and usually have a good knowledge of life insurance.

But you may have better luck with a broker that specializes in life insurance they will have a wider selection of companies to offer.

I just wanted to add, cash value life is not like a bank account that takes 75% of your money. Any cash value life insurance illustration will show you the cash value of the account and the total premiums paid. You will see that in the early years the premiums paid are higher than the cash value but later in the policy the cash value will be higher than the premiums paid. Cash value life insurance will almost always (99%) give you more than you paid in premiums.

Answer 4

Go to Yahoo Finance, click on "Personal Finance" and read the life insurance section.