Term vs Whole Life Insurance!
The detail understanding of term vs whole life insurance and discussion on structure, benefit, coverage, premium and cost.
There is age old debate on term vs whole life insurance. Most consumers are confused about life insurance and ignorant about various kinds of life insurance policy. You will hear Suze Orman talking on CNBC, Dave Ramsey on Fox Business and my friend Clark Howard on CNN or HLN about term life vs whole life. You will find many amateur and seasoned life insurance professionals’ videos on youtube and articles on Google, Yahoo and Bing about term vs whole life. If you die without life insurance, I can assure you neither Suze, Dave, Clark or any other person advice you will come and put some dollars in family’s hand. So, it’s your responsibility to understand these policies well and make a wise decision about your family’s future.
Let me give you my two cents too – I believe various kinds of life insurance policies are like “medicines in pharmacy”. If you take medicines wisely then, they will give you a long life but if you take them in wrong manner, then the same medicines may take your life prematurely. All policies have their pros and cons but no one policy is appropriate in all cases and for everyone. It’s depends on your very specific financial circumstances. A person with limited income and big life insurance need – most suited with term insurance while the person with money and in need of life insurance can greatly benefited from whole life insurance policy. I personally believe in a most cases, the combination of term and whole life insurance makes most sense. Let’s understand the term vs whole life insurance in detail.
1) Whole life policy provides insurance protection for your entire life as long as the policy is in force. This means that you will be leaving behind money for your family to cover any final medical bills, funeral expenses, estate & income taxes and outstanding debts, and a bequest to your family and/or favorite charity while in most cases your term insurance will EXPIRE before you EXPIRE leaving no death benefit for your family or your favorite charity. Term insurance is for specific period like 10, 15, 20 and 30 years and 99% policies end up in no death benefit. It gives a false sense of life insurance protection.
2) You can lock-in your premiums for life (you don’t necessarily have to pay the premium for all years) in whole life insurance vs term life insurance up to a specific term of years. With term insurance, since you will more than likely have to renew the policy at the end of the specified term, your premiums will go up substantially every time you renew. This is because the older you become, the higher your ‘mortality cost’ to the insurance company. The insurance cost will be substantially cheaper in whole life insurance than term life policy over the long term period. Even though you pay very minimal premium in term insurance policy but you will most likely going to outlive your term life policy as per industry statistics around 1% term life policies are being paid out as a death benefit.
3) There is a savings element to whole life insurance policy that is of immense value due to the special tax status by IRS. This whole life insurance cash value has several advantages. It can be used for emergencies as well as long-term goals, such as college savings plans or retirement savings plan in a most tax efficient way. You can access this whole life insurance cash value free of income tax up to cost basis and remaining in a form of policy loan. If you decide to cancel the policy before you pass away, the life insurance cash value savings is available to you income tax-free up to the cost basis of the policy. Term insurance is a pure insurance and there is no such special income tax benefits are available.
4) The life insurance cash value build-up inside a permanent life insurance policy like whole life insurance is creditor-proof in most states. If you are at fault in a car accident or any similar incident in which someone is injured or killed, and they or their family sues you, most of your assets can be taken. However, the cash value inside your whole life insurance policy is protected by law. The same goes for divorce and bankruptcy litigation in most states. Term life insurance and your other financial assets do not provide these kinds of benefits.
5) Finally, the cash value inside whole life insurance policy grows at almost 5% net return which you can compare with stock market 10% gross return when you factor in investment management fees, cost of term life insurance protection and income tax benefits. Also, the cash value of whole life insurance do not depends on stock market so you do not have to worry about stock market rollercoaster ride to get 10% gross return (did I mentioned that you need to be super lucky to make 10% in stock market now a days).
So, do you wonder that why Suze, Dave and Clark do not agree with this! I guess either they don’t understand whole life insurance or probably do not want to understand because of they earn very good endorsement commission/fee from various term life insurance only websites. You can find Suze at SelectQuote, Dave at Zander Insurance and my friend Clark is still negotiating some handsome term insurance endorsement deal.
While every type of life insurance policy has its own advantages & disadvantages; and fulfills a functions toward reaching your financial and life insurance goals, there is one policy that can play many roles. The current economic environment has created a demand for asset with a very decent rate of return, contractual guarantees and the advantage of tax-deferred growth. Whole life insurance is this wonderful asset while you are alive and guaranteed financial security for your loved one when are long gone.
Please call one of our life insurance specialists at (877) 972-3262 to understand term vs whole life insurance and find out the best and most affordable online life insurance quotes irrespective of term vs whole life as we do not incur any endorsement fee to Suze Orman, Dave Ramsey or to Clark Howard!
