Insurance Wholesalers -
We sell term life insurance for less than anyone.
Although we believe term life insurance is the best place to begin, and that most people will posses term ahead of other permanent (Whole Life) insurance, don't let the headline fool you. There are still some very good reasons to own Whole Life Insurance. We will try to briefly contrast the two for you.
The main argument presented against whole life insurance is this: "Buy term and invest the rest". The premise is this: An investment will perform better in other vehicles other than in a life insurance policy. We agree, to a point. What the broad statement fails to recognize is; A good investment portfolio also includes some "low risk or safe" portion. Whole life is a good way to fulfill this objective and you get some very nice added benefits that bonds or CD's just don't offer.
In the meantime back to our discussion. The basic difference between term life insurance and whole life insurance is this:
A term policy is life coverage only. On the death of the insured it pays the face amount of the policy to the named beneficiary. You essentially buy term for financial protection for a period of one year to 30 years. See additional discussion at Term Life Advanced.
Whole life insurance, on the other hand, combines a term policy with an investment component. In addition, the Whole Life policy assumes it will pay out (or become fully funded) at some point. Term life in many cases ends and thus never pays out vs. Whole life which in theory will always pay out. It's these two or three points means a big difference in cost between the two.
The result: Whole life insurance is more expensive: You're paying not only for a life time of insurance but also for the investment portion.
Leaving aside for a moment tax planning, estate planning, and /or deferred compensation issues -- the investment portion of a life insurance policy is probably not your best bet as an "Investment" as argued in the "Buy term and invest the rest" theory . However, as a savings vehicle, or compared to other "Low Risk" investments it's returns may actually meet or beat some bonds or CD's. Again with some additional benefits these other investments may not provide.
Clearly a Whole Life policy is not always a bad idea. Certainly the very wealthy or those with a high income may also find estate, tax, and other benefits. In either case, you should be prepared to hold the (Whole Life) policy for 20 years or more. Otherwise the insurance costs, internal fees, and commissions will dramatically reduce your return on investment. Most whole life policies do not build a decent cash value until the 12th to 15th year.
On the other hand; Tem policies for people under 50 in good health are down right cheap! For most people term insurance will meet the bulk of the financial security needs which is the crucial benefit of life insurance. However, we advise layering in some permanent insurance to meet the long term needs. We encourage everyone to make sure the overall financial plan is considered which includes Term Life, Investments, and Whole Life insurance.
For a more detailed explanation and discussion on the various types of Whole Life (universal life, variable life, variable universal life) and variations on Term Life (Return of Premium term -- ROP) see our tabs - Term Policies - Advanced or Whole Life Policies - Advanced
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For most people the right type of life insurance can be summed up very easily: Term - Discover which is best for you here.
Term Life Insurance vs Whole Life insurance!
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Opinions expressed on this site are generic in nature and designed as an overview of insurance types, uses, and strategies. It should not be used or considered advice for any single individual or family. You should consult a insurance and/or investment professional for advice on yours or for any specific situation.