Term vs Whole Life:
Which has the best advantages for you?
What is Whole Life?
whole life will give you a level premium and a level benefit, but
will cover you to age 120 or the day you die, whichever comes first.
It is more expensive than Term Life because it does much more than
just pay the cost of insurance and feeswhich is the nature of a
term. Whole life earns interest and builds cash value. You can borrow
against it in an emergency and, after the first few years, can cash
it in if you decide you no longer need it.
If you pay the premium for about 20 years, you will also have enough
to convert it to a single premium whole lifewhich means you will
exchange the cash for a paid up policy that could have a higher
face value than the original policydepending on your age. If you
do not medically qualify for a single premium whole life, you can
also convert a whole life policy into an annuity, thereby adding
to your retirement assets while still covering your final expenses.
A whole life policy takes
about three years to begin accumulating cash value. However, if
you can afford a high premiumaround $500, for example, which is
the minimum you would need to put in a savings account to accomplish
the same purposeyou can purchase a policy with a very high face
value. A policy with a face value of 300,000 will have $150,000
cash value in 15 to 20 years. If you are under age 65, you could
then convert the cash value and have a policy of over $300,000.
The numbers are a general example, The exact returns in your case
would need to be worked out between you and a knowledgeable agent,
but the point is, you can't lose your money unless you simply allow
it to lapse. Unlike a term policy, someone will receive the proceeds
of a whole life, whether you die and leave it to your beneficiary
or cash it in or convert it for your own benefit.
A True Story
Recently a client refused to purchase term life insurance, saying
that after thinking it over, he decided he was better off just to
put his money in a savings account himself for final expenses. He
is correct about one thing. At his age, in 20 years, he will have
paid $24,000 and if he does not renew the policywhich will be expensive
to dohe will have paid for 20 years of security with money that
someone else is making a profit on.
Refusing life insurance altogether, however, is short sited. A
final expense savings account may be fine, providing he either has
enough time to save the amount necessary to pay for final expenses,
possible taxes due, remaining bills, and leave something for a spouse
to live on. Most of us can't save enough money to take care of a
surviving family member and also build for our own retirementa
necessary act of planning in these days of shrinking social security
and group retirement benefits. Even more importantly, it's often
the people who think they will just "save for their own burial"
who either die unexpectedly, leaving a family to survive on their
good intentions, or have other demands on their money and never
do save enough to take care of the many things that seem to accompany
The client's concern is fully understood. He doesn't want to put
money into something and have nothing to show for it later on. One
must wonder if such a person also puts money into a savings account
in case the house burns downrather than pay for fire insurance,
or in large HSA rather than pay health insurance. Nevertheless,
there is a way to make sure of a guaranteed return on life insurance
without dying during the period of a term. Either the client or
a beneficiarysomeonewill definitely get the money if you simply
purchase a "whole life" policy.
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