All Life Insurance Tips

What is the difference between whole life insurance and term life insurance? Which is better?

Public Comments

1. Pretty simple, term insurance has an end date. Once you reach a certain age you no long have coverage. The advantage is its the cheapest. The whole life insurance never runs out, but its much more expensive. One more thing about the whole life insurance, is if a day comes where you really need cash you can sell the policy. If money is no object get the whole life.........
2. The difference between whole life insurance and term life insurance is very much like the difference between owning a home and renting a home. When you own a home and make mortgage payments you build up equity and the value of your home goes up. With whole life insurance you build up cash value and the death benefit increases. When you rent a home, your payment gives you a roof over your head but does not earn any value to you. With term life, your payment provides a death benefit, but there is little to no cash value to increase the death benefit. The premiums for a term life policy are usually less than the premiums for a whole life policy and may increase over time. Whole policy premiums tend to be greater but do not necessarily increase over time. Premium amounts are determined on a variety of factors: age, gender, health, lifestyle, etc. You can covert a term life policy to a whole life policy. So if money is an issue, start with term and convert to whole life at a later date when finances allow.
3. The above posts do a fair job of describing the products. My concern is the question "which is better?" Neither is "better." Each has circumstances for which it is the best application. The truth is that most people need both, for a variety of reasons. If it's a temporary need, term is normally the solution. If not, permanent coverage is needed. A thorough analysis by a qualified financial advisor can remove the guesswork. Also, just because term coverage has a lower premium doesn't mean it's less expensive. The shorter the term, the lower the premium; but if you choose too short a term, the renewal premium will likely be astronomical. A whole life policy will normally begin paying its own premium out of dividends at about the 12th-15th year, resulting in about the same total premium outlay as a 30-year term, but remaining in force your entire life. Also, whole life isn't your only option for permanent coverage, but that's a whole new topic. See a financial advisor, not an insurance salesman.
4. That's like saying, what's better, apples or oranges? BEFORE you buy life insurance, sit down, and write out what you want it to DO for you. You should have a GOAL, and an EXIT STRATEGY, just like any OTHER financial tool you use. Then sit down with your local agent and see which tool fits your needs. For MOST people, they want life insurance around when they have minor or college age children - as they get older and more financially secure, and the kids leave the nest, and the mortgage is paid off, and they start acquiring some real serious assets, they don't need the life insurance - so TERM life fits that need best, and is the most affordable type coverage. But some people, especially those that own a family business (think, family farm!) need a policy to pay ESTATE TAXES so the family doesn't have to literally, sell the farm, in order to pay the estate taxes. It doesn't MATTER that you don't have kids any more. Or maybe, you're dying of cancer, and want to leave your grandkids $1,000,000 each, without Uncle Sam taking 40% in estate taxes FIRST. If you buy a WHOLE LIFE policy, even if it costs more than the $1,000,000, it WON'T cost as much as paying estate taxes will, and then you get to leave tax free benefits to someone. So, just like everything else, you need to pick the right tool for the job. But you need to define the job, first.
5. Whole life insurance is a rip-off. The insurance industry is built on this product. The premiums are high and the agents that sell these policies make huge commissions. Your best bet is to go for a term policy, take the money you would be saving from a whole life policy and invest the difference. This will ensure that as your investments grow, your need to have life insurance will decrease and eventually you will be self-insured.
6. I agree with Rob. Anyone that tells you to only buy term insurance or only buy whole life insurance does not know what they are talking about. Thats like a realtor telling their customer to only buy condos. There are many types of life insurance out there and usually a combination of two will most effectively cover your financial needs. Meet with a local life insurance professional - http://www.insuremylife.org They will help you determine how much coverage you really need and the best way to obtain it.
7. Whole life insurance is good for a minority of people. It allows you to save up money you may need later. However, the commissions and other expenses of whole life and other "cash value" insurance bleed away a lot of your money. You will make more money in the long run if you buy term life insurance and invest the money you save in an IRA, 401K, or no-load mutual fund. If you look at financial sites not run by insurance companies, they are almost unanimous in recommending term life insurance. Look at big name sites like Yahoo, CNN, Motley Fool, SmartMoney.com and Kiplinger's, and they all recommend term life insurance for most people. However, read these sources and make up your mind for yourself. You may be one of the rare people who could use whole life insurance. Sources: Term vs. Whole Life Insurance Articles: http://finance.yahoo.com/insurance/article/101749/Term_or_Whole_Life? http://money.cnn.com/pf/101/lessons/20/index.html http://www.smartmoney.com/insurance/life/index.cfm?story=whichtype0205 http://www.kiplinger.com/basics/archives/2003/03/life3.html http://www.fool.com/insurancecenter/life/life06.htm General Information on Life Insurance: http://www.fool.com/insurancecenter/life/life.htm http://finance.yahoo.com/how-to-guide/insurance/12823 http://money.cnn.com/pf/101/lessons/20/index.html http://www.kiplinger.com/basics/archives/2003/03/lifeinsurance.html
8. The best insurance is Whole Life. It is true that it is about 10 times more expensive than Term Insurance in the beginning. However, after you own the policy for a while it has a negative cost and the dividends will pay the premium for you. If you can't afford Whole Life in the beginning, there's nothing wrong with getting term for a few years - no longer than 3 or 4 - but then convert it to Whole Life. Whole Life is a very powerful tool and the foundation of any solid financial strategy. The benefits you get over Term are tremendous...disability benefits, medical benefits, liability protection, basic estate planning, and cash value. But the real reason you should buy Whole Life is because you can effectively spend the death benefit while you're alive during retirement (with the proper strategy). It can make non-income producing assets produce income and increase the power of your overall financial situation in many many ways. Whole Life gives you flexibility that no other product can match. Most people - as well as many media publications - do not understand insurance and how it really works, thus you get very misguided and incorrect information. When you cancel the Term policy you will have lost the premiums, lost the earnings ON the premiums, and ultimately you will have lost the death benefit. Insurance companies LOVE Term insurance because they pay out less than 1% of all policies. They make TONS of money off of it. And in the end, you get nothing for your money. Buy Whole Life. Also, please DO NOT pay attention to anything that "Doing the Right Thing" says. His information is grossly inaccurate. For example, Cash Values are NEVER used by the insurance company to pay for premiums. A policy is NOT structured that way. His information is not to be regarded as true.
9. to TamarAnn--- I have worked in Ins. Adjusting for 30+years, I have seen agents try to muddle through explaining the difference between term and life, and in the end have everyone in the room confused... LOL But THAT, my dear, was brilliantly done. You should teach!! Agents!! Bravo!!!!! excellent analogy.. and Rob, you're right, she didn't address which one was best. she answered the question, and brilliantly.
10. What is life insurance? Life insurance is an insurance contract that pays your beneficiary (which are usually family members) a sum of money upon your death. Main reason why people purchase life insurance is to protect the family from financial loss, otherwise known as "income protection." There are currently two types of life insurance out there available to the public. One is known as "cash value" life insurance and the other is known as "term insurance." What is cash value life insurance? It is the type of policy that contains a savings vehicle in it. Cash value comes in many forms, such as whole life, universal life, variable life, or a mixture of those words together such as variable universal life or universal whole life, etc. The advantages of having cash value life insurance is that you are protected until age 100, you can use the cash value anytime for any use such as paying your premiums, and interest on your cash value is tax-deferred. The disadvantages of having cash value life insurance is that you are paying lots of premiums for low amount of coverage, no cash value is accumulated during first two years of the policy, rate of return is very low, and if you use any of the cash value, you must pay it back with interest. This interest does not go back into the cash value, but rather kept by the insurance company because the money you taken out of the cash value is treated as a loan. In many policies, if you were to die, your beneficiary will receive the face amount and all cash value will be kept by the insurance company. Keep in mind, if you use any of the cash value and you did not pay it back, this amount will be deducted from face amount upon your death. You are probably asking, why would anyone buy this kind of life insurance? First reason is that many people do not understand how this policy works. Second reason is that people don't buy life insurance, they are sold on it. The agent who sells cash value life insurance does not care about you or your family. All he/she cares about is how much commissions he/she is getting paid and they going to use whatever deceptive sales tactic to make you buy it. For example, the agent may say that in some time in the future, your life insurance is paid up and that you don't have to pay the premiums anymore. That is absolutely false. If you do not pay your premiums, the insurance company will use your cash value to pay it. I had a client who didn't know that loans were taken out of the cash value to pay for the premiums. She thought it was paid up, when it really wasn't. When the cash value hits zero, you will get a letter saying that you are in danger of losing your life insurance and that you must pay back all cash value and all missed premiums. If you don't, you will lose coverage and will pay income taxes on the loan amount. So, what is term insurance? It is the type of insurance that provides a level death benefit for life. Just like car insurance, if you don't pay your premiums, you will lose coverage. Advantages of having term insurance are: premiums are very low during the term, you have more flexibility to invest your money in a savings vehicle (hence the phrase, "buy term and invest the difference"), and if you were to die during the term, your beneficiary will get the face amount and all your investments. The disadvantage of term that while premium remain fix for certain amount of period (10, 15, 20, 25, 30, or 35 years), the premium will go up when it is time to renew. You may pay the annual renewal premium, which goes up every year or so after the initial term, or get another term policy. Term never expires until you stop paying for it or when you become 90 something years old. However, some companies only have annual renewable term until age 70 or 75. In either case, you probably won't need life insurance by that time because no one is dependent on your income or you don't have any income at all because you are living off your investments or savings, social security (which won't be much), and probably pension plans (if they still exist when you retire). Why would people buy term insurance? First, premiums are very low and remain fix during the term. In the early stages of your adult life, you probably have lots of debt to pay off such as your mortgage, you probably have kids to support, and you probably don't have much money saved for retirement. So you need lots of insurance coverage to protect the family. As you get older, your kids are all grown up, your mortgage is or almost paid off, and you better have lots of money saved for retirement. As you get older, you probably won't need life insurance or need as much coverage as you did 20 to 30 years ago. Why life insurance agents rarely sell this is because of the low premiums. Some agents that sell term insurance will come back to you a year or two and have you convert it to whole life. There's good chance you will do it because the agent or whoever is trying to sell it will make cash value life insurance look very good to you. What happens when the level term expires? When the level term expires, you enter the phase of the contract called "Annual Renewable Term." That means you have the right to renew the term without having to provide proof of insurability. The premiums will go up every year or so (check the policy on how often the premiums goes up after the level term). There are many things you can do when the level term expires. (1) You may convert it to a permanent whole life policy (which I don't recommend). (2) You may purchase another level term (I recommend that you significantly lower your coverage amount to a minimum of $20,000). You may need to provide proof of insurability. (3) You may refuse to pay the premiums to cancel the policy (if you do this, I highly recommend that you allocate the money toward your retirement).