Which is better, term or whole life insurance?

Question

My husband seems to lean towards whole life because the premium is cheaper and cash value is built? I lean towards term because when I was working in private banking, that was what was recommended. $70,000 term for $20 a week

$52,x*x whole life for $15 a week

Answer 1

There is no real comparison. TERM Don't listen to people who try to get you to buy it because they are only wanting to line their pockets. You can take the money you save buying term instead of whole life and put it in a savings and end up with more money than a whole life policy guarantees. As the years go by your rate may go up but you may not need as much because your kids may be grown and your house may be paid for. I bought term and took the money I saved and bought a survivor's income insurance in case something happened to my husband I would have a monthly income. I had to use it and boy am I glad I did that. I could have never matched his income in the workplace.

Answer 2

First off, the relative cost for these two plans seems nearly identical.  15/50000 ~ 20/70000.  This tells me that the whole life you are being proposed is most likely sold on a non-guaranteed basis (dividends or current interest rates).  No insurance sales person can guarantee or imply a guarantee on any non-guaranteed elements for good historic reasons.  The "company strength" argument on this one is a carefully woven distraction, not the truth.

Secondly, weekly premiums are a good way for marketing departments to compare non-competitive costs.  Most competitive companies will quote monthly or annual costs, but do some comparing just to be sure.  I'm guessing this is a payroll deduction signup where the agent hopes you don't miss the money enough to check around, but I could very well be wrong.  Do your own prudent investigation with other insurance professionals.

Third, and this one gets me every time, insurance is about offsetting a large financial risk you cannot afford to take yourself.  It makes zero sense that the risk would be larger if you have a term product.  Focus on the amount of protection first (because that's the check that shows up at the door when you die), then look at how you buy the coverage your family needs.  Talk with a few different agents to get multiple perspectives or a fee-only financial planner if you need to.  No one can give you accurate, personalized advice based on the information above.

Answer 3

If you have the opportunity to purchase whole life 52k for $20 less per month than 70k term.  I say go for the whole life.  It will most likely build cash value and the premiums will be locked in at the age of purchase.  You can read all about term, whole and all other forms of life insurance at http://www.lvhealthins.com

Answer 4

Term... typically comparing apples to apples you should be paying less for term.  It's the better deal.  The money you put in a whole life policy would do you more good to save and invest longterm in a mutual fund.  Insurance companies are out to make money from your money.  You'll do better if you make the profit that they would.

Answer 5

There are other alternatives like Universal Life which can have flexible premiums and a pretty healthy cash value (especially if you pay more than your premium). Universal life policies can also increase death benefit if you fund it well. More expensive, but I think an option.

Answer 6

fth106 is spot on.  Anybody that has any experience in meeting clients needs, instead of making a sale or twisting their product to make it work should not be trusted.  You should have a permanent whole or UL with at least enough death benefit to be used as a burial policy.  When your term expires when you are 65, enjoy paying hundreds of dollars a month to renew your term.  If you have the whole or UL already in place, then you are set.  Dave Ramsey's sheeple need to think for themselves.

Answer 7

GO MEET WITH A FINANCIAL PROFESSIONAL.

You have not given enough information for anyone on a message board to give you the answer to which insurance is BEST for YOU.

Do you have a special needs child that will need care for his/her entire life regardless of when you die.  If yes, term won't work.  

Do you and your husband have pensions that will pay a lesser amount for joint lives (the financial pro will explain)  Term won't work there either.

Do either of you have a job where you could be sued and lose everything (like a doctor).  Term won't protect your assets if you are sued.

There are lots of reasons to buy (some) permanent life insurance.  Your insurance needs will change over your lifetime.  So will your health.  If your health goes downhill, you may not be able to buy insurance at any price.

Keep in mind that you can own both term and permanent.  A combination makes a lot of sense for a lot of people.

Many of Dave Ramsey's followers will wish they had some permanent insurance (whole life or universal life) later in life when their bills pile up (like medical bills) and they have very little money left to pay.  One spouse may become impoverished.

Answer 8

ANYONE, including Dave Ramsey (who I respect), is being irresponsible to lump every person in the same basket.  

To answer your question directly, neither is better.  Each product meets the needs of a specific segment of the population.  

Term is cheaper.  If you invest the difference, you might come out ahead.  What most people who push term don't take into consideration however,  is that after the term expires, the cost to renew is exponentially higher.   If you are 30 and purchase a 30 year term product you will be 60 when it expires.  If you still need life insurance at 60, the cost would be enormous for a new policy, if you are still healthy.  If you are not healthy, you are out of luck and will need to renew that 30 year term product on what's called an ART (annual renewable term).  The cost will be based on age and will, again, be enormous.  Every year, the cost will go higher and higher.  

Whole life, on the other hand is more expensive.  If set up properly, it will give you insurance for your entire life for the same premium that you take it out at.  Some people need and want that.  It isn't a very good investment and should never be sold as one, but it does have its place in a life insurance portfolio.

Many times what I recommend people look at is to take a smaller whole life policy and attach a larger term life rider.  For example, if you need $500,000 in life insurance now due to your family situation, but feel that you would want to always have at least $100,000 of life insurance, I would set up a $100,000 universal life policy with a $400,000 term rider that would expire after the set term has expired.  I set the term to what the family situation is.  

Don't let anyone tell you what you need.  That is up to you and your husband to decide.  Many salespeople will try to force you into a particular product because that is all they have to offer.  If that happens, find a different agent.

Answer 9

Many people think life insurance is useful only for a specific period in life: those twenty to thirty years when a person is married with children living at home. They assume that once the children are grown, the surviving spouse will be able to support himself or herself on a single income. These people believe term life insurance, which provides coverage for a specified number of years, provides all the protection you need.

Others are not so optimistic. What happens if the surviving spouse becomes disabled? Even after the children grow up, a disabled person will not be able to support himself or herself if the breadwinner dies. If the term life insurance has expired, the disabled spouse will have no safety net in the event of the death of his or her spouse. Similarly, a child may become disabled and unable to move out and support himself or herself like other children. With a disabled adult child living at home, the surviving spouse might not be able to meet all the expenses on his or her own.

It is possible for an older person to buy a new term policy, of course. The problem is that insurability is not guaranteed. If a person is overweight, in  poor health, or has had a serious illness, such as cancer, insurance companies can and will deny coverage. Even in ideal health, or if the person has a renewable term life policy that does not require a physical exam, a person will pay much more for term life over the age of 50 than he or she would have earlier, erasing some or all of the savings realized during the term of the first policy. For example, a 55-year-old woman will pay 6.8 times more for a 30-year, $500,000 policy than she would have at age 30--$2,210 a year compared to just $325 a year. Permanent life insurance—such as whole life or universal life—will not expire and the payments will not go up based on the health, weight, or age of the insured. Permanent life insurance costs more initially, but it is a practical solution for consumers who worry about coverage and insurability later in life.

Answer 10

TERM!! Dont go whole life..

From Dave Ramsey...

Myth: Cash value life insurance, like whole life, will help me retire wealthy.

Truth: Cash value life insurance is one of the worst financial products available.

Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are HORRIBLE. Your insurance person will show you wonderful projections, but none of these policies perform as projected.

Example of Cash Value

If a 30-year-old man has $100 per month to spend on life insurance and shops the top 5 cash value companies, he will find he can purchase an average of $125,000 in insurance for his family.  The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20-year-level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100.

WOW! If he goes with the cash value option, the other $93 per month should be in savings, right? Well, not really; you see, there are expenses.

Expenses? How much?

All of the $93 per month disappears in commissions and expenses for the first 3 years. After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy that includes mutual funds, according to Consumer Federation of America, Kiplinger's Personal Finance, and Fortune magazines.  The same mutual funds outside of the policy average 12%.  

The Hidden Catch

Worse yet, with whole life and universal life, the savings you finally build up after being ripped off for years don't go to your family upon your death.  The only benefit paid to your family is the face value of the policy, the $125,000 in our example.

The truth is that you would be better off to get the $7 term policy and and put the extra $93 in a cookie jar! At least after 3 years you would have $3,000, and when you died your family would get your savings.