Term Life Insurance vs Whole Life

Term life insurance vs whole life is a well debated subject.  What I hope to accomplish with this post is to give you a few facts, and my opinion on the best option.  But with regard to term life insurance vs whole life, it really will depend on your goals for the future. I have compiled a simple chart that should give you a nice idea of what the differences are between term life insurance and whole life.  Before we go on, you may want to review Term Life Insurance Definition and Definition of Whole Life Insurance. Ok, let’s review the charts, and then move on to some real life conclusions / recommendations:

Term Life Insurance

Whole Life

  • Death benefit only, no cash value
  • Cheaper premiums
  • Premiums increase with renewal
  • Fixed timeline of coverage (hence the word  “term”)
  • No benefit paid if you live past the coverage
  • Generally not pushed as much by insurance salesmen
  • Many different varieties to choose from
  • Death Benefit Plus Cash Value
  • More expensive premiums
  • Usually premiums remain level 
  • Covered for life (or a payout at age 99, typically)
  • Ability to borrow against cash value
  • Typically offer some kind of guaranteed minimum return on the cash value portion of the policy
  • Can be tax free growth on the cash value portion
  • High administrative costs (built into the premiums)
  • Pushed by insurance salesmen (I compare them to used car salesmen)
  • Many different varieties to choose from

There are more differences to term life insurance vs whole life than are mentioned here.  I just showed you some broad strokes.  The main point I am getting at, is that for someone reading this blog, you are wanting to achieve a very comfortable, if not wealthy retirement.  Life insurance is a necessary evil, however it is my belief that you can achieve a much greater return on your investment if you utilize other options instead of a cash value type insurance policy.  The difference in cost between term life insurance and whole life is great.  Just do a google search for term life insurance quote or whole life quote and you will see what I mean.

Life insurance, at least term life insurance, is designed to care for your family in the even of your untimely death. That is where the value is in having a policy. Mixing insurance and investments is just not sound personal finance. Your goal should be to obtain financial freedom, thus releasing you from the need to have life insurance. You, and me too, want our families to be cared for in the event of our death. So develop a term life insurance strategy that will cover you until you reach your financial goal. Ten years? 15? 20? Depends on how hard you want to work. As for me, I have roughly $200,000 in coverage through my work via an AD&D policy (costs me less than $10 / month). The policy terminates when I leave the job. I am working hard to place myself in a position to leave the job very soon, however the term life insurance that I have would nicely provide for my wife should I die before obtaining financial freedom. What do you think? You may leave your questions / comments at the bottom of the page.

6 thoughts on “Term Life Insurance vs Whole Life

  1. Pingback: Term Life Insurance Definition

  2. Term life insurance can be a great alternative to bank mortgage insurance. Term life is usually significantly cheaper, and allows you to retain financial control by naming your own beneficiary. Talk to your life insurance broker about your options.

  3. Jeffrey,
    You are in a very unfortunate position, my friend. If $200K will replace your “human life value” to your wife, you are either not worth a lot or you don’t care much about the predicament you will leave for your wife.
    As for term versus whole life, your “group” insurance will be the most expensive kind should you keep it long enough – the premiums will increase each year until you can no longer afford it.
    As for not needing life insurance one day, you may change your mind after it is too late to do anything about it. There is an old saying in the world of lawyers, “Any attorney who represent himself has a fool for a client.” It seems you are relying on an uneducated, unlicensed, representative for your advice…. and you get what you pay for. Here are some additional questions you may wish to answer:
    Q: If whole life is so bad, why do wealthy individuals buy lots of it? A: They understand what it does.
    Q: How much would you have to earn to make “Buy Term & Invest the Difference” work for you? A: About 7.5%, every single year
    Q: What happens to your wife if your plans to replace yourself economically don’t work out as planned? A: Don’t know – Do you?

    • Which wealthy individuals buy lots of whole life insurance? And what do they understand about it that I don’t?
      Why can’t you make 7.5% interest every year with simple investments – such as the S&P 500 index?
      What happens to anyone if their plans fail? They get hurt. The key is to plan for possible problems, but even the best planner can’t cover every possible thing that can go wrong.

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