Whole Life vs Term Life ?

Question

Right now I have term life insurance, but I am trying to determine whether I should switch to whole life. I just noticed after 3 years that my premiums at 58 will go up almost $250, that's crazy. Then I realized if when I do turn 58 if I don't want to continue with that policy due to high premiums, I will not get any of my money back. I don't like that. I don't believe I need a high insurance policy, and I understand whole life cost more, but I am wondering if I should take that risk.

Answer 1

Run the numbers.   Whole costs about ten times as much as term.  If you invest the difference, you're WAY ahead of the game.  

The only way you get your money back on whole life, is by DYING.  Otherwise, the cash value is about 10% of what you've paid in - pretty crappy return, from an investment point of view.  

Define your goal.  For most people, buying term & investing the difference, is the most cost effective way to acheive the goal.

Answer 2

As the Benefits Manager for my company, I get asked this question a lot. We provide term life for our employees, and they have the option to purchase more, and if they ask, I advise them to check with their home owners/car insurance etc, vendor to see about a whole life policy.

Whole life insurance is always a better product. While it's more expensive, the right policy will virtually pay for itself in the long run. For example, the whole life policy I have for myself will no longer require that I pay premiums in about 20 years (I'm 41 now), with the same benefit. In fact, my $35,000 benefit will actually be worth closer to $40,000 by the time I'm 65. (I purchased mine through Farm Bureau, who also insures our home and autos)

Bottom line: if you can get some term life through your employer, the premium may be a little more stable, but 58, you're really reaching the limit of affordable insurance. Get a whole life policy now. Look at what you're insuring-do you need money to pay off a home if you die? Just to pay bills? Do you have dependents? Your mortgage lender may have life insurance for your mortgage-enough to pay off the house if you die. If you have no dependents, and just need enough to pay for any bills that may be left behind, check out a small policy--a whole life policy, and make sure the people who need to know KNOW how to file a claim if necessary.

Answer 3

Consider how long you need insurance.  You can get term to be level for 30 years or even a low cost policy just to give you a guaranteed death benefit until age 100 with little to no cash value.  You buy insurance for the death benefit anyway.

It's unlikely that you'd need a whole life policy, but maybe a to age 100 policy combined with some term.

You can see the differences here...

http://www.InsurancePickle.com/life-insu...

The quote engine requires no personal information to use.

Answer 4

Regarding money back, do you get money back on your car insurance? health insurance? no.  So why should you get it back on life insurance? (the only policies that pay dividends are from mutual companies.  All a dividend is in insurance is return of OVER PAID premium).

Regarding Whole Life vs. Term.  There is only term insurance.  Whole Life/cash value/cash SURRENDER value are contracts that purchase term insurance and invest a portion of the proceeds into funds.  The purpose of the extra money is to have the cash value equal the face amount at age 100 so the insurance company wont lose any money.

If the policy is going to go up after 3 years, get one that is level for a longer period of time.  You can get new policies typically till age 70 and some will renew till age 95 or 100 and still remain more affordable than cash value (assuming you get the right term policy).

---

Katie, you may want to double check.  Just because you stop paying, does not mean you have stopped paying.  You are paying for the insurance out of that cash value of yours.  That policy is also probably designed to lapse sometime between your 65th and 70th birthday.

For the same premium you are paying now, you can probably get a term product with 3-5 times, or more, the coverage.  Closer to what you would need if you were to die instead of the $35k - $40k you have now.  Your funeral alone will run between $10k and $15k on average.  Not counting any final medical bills that may need to be paid.

On top of all of that, that cash value of yours, gets surrendered back to the insurance company UNLESS you pay MORE for it.  Read your policy and you will see what I am talking about.

A point of note, insurance regulation is very strict.  By advising your employees that depend on you for credible advise, that they take a product that may not be in their best interest, you, and your company, could be held liable for fairly large lawsuits.  The best advise you should be giving them is to talk with a financial adviser/analyst/coach instead of their existing agent.  They can give much better advice.

Answer 5

Don't change your policy.   The other poster was right.  Stick with term and invest the difference.

Answer 6

One other question:  Have you look at what the premiums will jump to after that next term?  Gauranteed $250 will seem cheap when you look at what it will jump to next.  

That next time you'll be betting $250/month that you will die within the next 5 years by age 63.  After that what $500 a month that you'll die before age 68.  Then you'll be betting $800 a month that you'll die by 73.  Why not bet $300 a month now and bet that you'll die at some point and not worry about how old you'll be when you die?  (PS: those numbers are just guesses as to what the premiums will go up

It really depends why you are buying the insurance in the first place.  

Are you protecting a temporary need or a perminant need?

Temorary needs are things that will go away after a certain period of time.  Temporary needs may include (but not limited to):

Debt payment

Mortgage payment

Child care for young children

making sure the kids get through school

providing your spouse with income for a couple years to greive

Perminant needs are something that will never go away whater you die tomorrow or 40 years from now.  Perminant needs may include (but not limited to):

Funeral costs

Admin fees

lawyers fees

Final years income taxes

Estate taxes

Charitable giviing/legacy fund

If it's temporary needs go with Term.  If it's perminant needs go with whole life.

I like to relate it to housing.  

Term in like renting a house.  It's ussually a temprorary fix.  Yes it's cheaper, but you'll never own it.  The landlord can kick you out eventually (Term will expire at age 80 or 85) and there's nothing you can do about it.  The landlord can also jack up the rent every few years (IE: premiums increasing) and if you sell it (cancel the policy) you get nothing back...just hand back the keys and they thanks for your time.

Whole life is like buying a house.  It's a more suitable long term solution.  Yes, it's a little more money, but you never have to worry about getting kicked out, or the rent going up.  You also build up equity (cash value) so if you do decide to move on, you'll get something back out of it in the end.

And for the Buy Term and Invest the Rest folks - it's a good stategy in theory, but it's not suitable for everyone and often doesn't work out as planned.  People sometimes aren't disaplined or knowledgable enough to invest the rest, do it right and leave it there.  It should not be preached as a one size fits all solution because it clearly isn't.