Term Life Insurance Vs. Whole Life Insurance

Hero

I launched FinanceSuperhero in April 2016 to help others save money, get out of debt, earn more money, and live the best life possible. Send me an e-mail or a comment if I can help you in your journey. Thanks for reading!

24 Responses

  1. I agree with you FS, and think you summed it up well at the end saying investments can serve as insurance but insurance shouldn’t serve as an investment. And actually check back tomorrow for my guest post on Distilled Dollar’s blog for my ongoing review of the need for life insurance. In it I analyze my historical decision process at major life events for life insurance. Thanks!

  2. Hey there everyone. It seems that insurance, especially life insurance is a hot topic at the moment. I am publishing, later today, an article I wrote a couple of weeks ago on my thoughts of insurance, including life.

    To be honest, I am not a great fan of any life insurance except in certain circumstances which I cover in my article. In fact, I just have a general dislike of insurance companies in general although that may be due to being ‘stiffed’ by them twice in my lifetime. They are very good at taking your payments but are even better at avoiding a payout when you lodge a claim.

    In my opinion, I believe you are best paying the least possible for insurance and use the money not given to these huge corporations to put in your own investments (in other words, give it to other huge corporations. Ironic really) and basically, self insure for all but the most expensive assets (house) or riskiest assets(hmmm, asset?), car.

    There are only a couple of exceptions to this which I cover in my post.

    Great post FSH. It’s the value of this online community that we can share our insights, experiences, opinions and knowledge with each other.

    • Hero says:

      I’m looking forward to your post, Martin, and I’m sorry to hear you’ve had a hard time with insurance companies.

      Even term life insurance, which I recommend to everyone I know, can be a hassle now and then. Recently, I increased my policy to better protect my wife in the event of my untimely death, and the process was not very efficient. However, the policy is now in place, so it was worth the hassle.

  3. You could make an argument that the typical investor at Merrill Lynch in a 50/50 stocks bonds portfolio over the next 30 years will be lucky to earn 5% before fees. After fees, they would keep about 3%. After taxes, you probably keep about 2%, so whole life looks about the same to me as any another expensive financial relationship. I would never buy it though, basically a scam to give the insurance companies more float. Hope they do away with the estate planning benefits.

    • Hero says:

      That’s certainly a valid point, Travis. I certainly hope my portfolio does better than 5% of the next 30 years, but there are no guarantees in investing, obviously. I would never fault anyone for making a decision after examining the facts, but like you, I don’t think I could ever get behind the whole life train.

  4. We bought term life when my son was little. We bought extra through the megacorps I worked for and had an extra policy to equal 6-7x our annual income. Since he has just graduated from high school and we have early retired we are letting all of the coverages lapse. I never had any interest in whole life – always felt term life was the best tool for the job.

  5. Glad she’s feeling better!

    And yep, whole life is a terrible idea by and large. When I did a piece about it, some of my readers had surprisingly low rates (they must’ve started early) so they were the exceptions. But almost everyone else… eesh.

  6. Interesting debate and one that everybody needs to consider at some point in their life. I am a big believer of not having any kind of life insurance unless you have dependents. I know that my company has a small policy for me once I join them which will be fine. Until I have children I see this more as an expense than an investment.

    • Hero says:

      I think that’s perfectly reasonable, Stefan. The only advantage in getting term now is that it would be very cheap. However, it will still be cheap when you have children, too.

  7. I’m a fan of life insurance regardless of the type. Protecting your family in their time of need is the responsible thing to do. If money were no object I’d choose whole life, but since money is an issue for me, term is much more attractive due to it’s low monthly fees.

    Two things to add as benefits of whole life, 1. After a certain amount of time premiums no longer need to be paid as dividends can cover premiums. 2. Whole life can be used as a family bank. By this I mean, a $500k policy can be borrowed against and the money doesn’t have to be paid back. The difference is taken off of a policy death payout total. This can be a very powerful tool if used wisely.

  8. ZJ Thorne says:

    Whole seems inappropriate to my needs. I have no children. My girlfriend is not my wife. I just want to ensure that my death expenses don’t harm anyone and the residuals can go to my college and a nonprofit I like.

  9. Keith says:

    For a better understanding as to why one might want to own whole life you might want to study why it is that wealthy people buy whole life and also why banks and corporations are the largest purchasers of whole life insurance. It really isn’t as simple
    as comparing whole life and term insurance. These apples and oranges and have different purposes. It’s hard to arrive at the proper solution when you begin from the wrong premise. Most articles and people’s comments are beginning from the wrong premise.

    • Hero says:

      Thanks for stopping by and commenting, Keith. You are correct that I simplified the issue, reducing it to a straight-on comparison between term and whole life. To do the topic complete justice, I would probably need to write a book. Perhaps I should. 🙂

      That said, I disagree that this approach is the “wrong” premise. I am going to assume that your comment about the reasons why wealthy people buy whole life relates to estate planning purchases. In this sense, the extremely wealthy are using an insurance product as an investment vehicle. In doing so, they often pay astronomical upfront commissions in the first year or two (as high as 55%, I’ve read) while gaining ho-hum returns. I know whole life agents like to tout the safety of their returns and compare it to the relative volatility of single stocks and mutual funds, but when an investor plays the long game, mutual fund portfolios provide superior returns over 20+ year periods.

      At the end of the day, it still strikes me as illogical to invest using an insurance product. However, I’m open to learning and will gladly admit the error of my thinking if presented with data and reason.

  10. Alex Alex says:

    is it a debate though? Great article!

    • Hero says:

      Thanks for sharing this, THP. I’m looking forward to reading it. WL is very complex, and I know I still have plenty to learn about how some policies are structured.

  11. Dane LaVigne says:

    This has definitely been a long debated issue. I believe it is always best to determine which type of insurance is best for yourself based on what you want and what your financial goals are. Many times it is appropriate for someone to have both term and permanent insurance. Great article.

  1. September 28, 2016

    […] Term Life Insurance Vs. Whole Life Insurance […]

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