whole or term life insurance, which is best?
Posted in Life Insurance Questions about 1 year ago, 6 replies
submitted by angel in atlanta, ga
Angel,
As a life insurance broker in the Atlanta area, I will assure you that you have every right to be confused. On the one hand, you have the likes of Clark Howard saying things like "never buy term". In fact, there are companies out there that push the concept "buy term...invest the difference!"
The truth in the answer lies in an understanding of the essential difference between term and whole life...term is like renting an apartment (for some it suits all the needs) and whole life is like buying the apartment (in midtown, they'd call them condo's, of course). Sounds simple, huh? Actually the analogies are closer than you might realise...if you buy a 20 year level term policy, for example, you will get what you buy...insurance coverage that has a level cost and face value for the whole term. Once the term ends, you have the option of continuing, but the "level" part ends...rates go up! This type of policy is great for protecting a growing family, a new mortgage, and other commitments that are only expected to last a certain term.
If you talk to a condo owner in midtown, you will note that their cost of ownership stays rather constant, but the value of their purchase (think in terms of the current real estate bust) isn't always guaranteed. Whole life has s guaranteed cash value, which you can always count on for the rest of your life. It will eventually reflect a positive return on your investment...but the risk of inflation's effect, or legislative risk (if they ever change the tax status of whole lif) is always there.
I will say this...I currently have a client, 74 years old. He bought into the buy term...invest the difference idea (investments didn't work out). His term policies will end within the next 5 or 6 years and renewal or conversion will cost an arm and a leg. His wife feels exposed...what if he dies without life insurance???
Sometimes the best answers are not always the best results...we never know. There is only one certainty, and that is this...THE BEST TIME TO CONSIDER A LIFE INSURANCE PURCHASE IS NOW. (I am not only an agent, but one who is uninsurable...I know how quick things can change)
As a life insurance broker in the Atlanta area, I will assure you that you have every right to be confused. On the one hand, you have the likes of Clark Howard saying things like "never buy term". In fact, there are companies out there that push the concept "buy term...invest the difference!"
The truth in the answer lies in an understanding of the essential difference between term and whole life...term is like renting an apartment (for some it suits all the needs) and whole life is like buying the apartment (in midtown, they'd call them condo's, of course). Sounds simple, huh? Actually the analogies are closer than you might realise...if you buy a 20 year level term policy, for example, you will get what you buy...insurance coverage that has a level cost and face value for the whole term. Once the term ends, you have the option of continuing, but the "level" part ends...rates go up! This type of policy is great for protecting a growing family, a new mortgage, and other commitments that are only expected to last a certain term.
If you talk to a condo owner in midtown, you will note that their cost of ownership stays rather constant, but the value of their purchase (think in terms of the current real estate bust) isn't always guaranteed. Whole life has s guaranteed cash value, which you can always count on for the rest of your life. It will eventually reflect a positive return on your investment...but the risk of inflation's effect, or legislative risk (if they ever change the tax status of whole lif) is always there.
I will say this...I currently have a client, 74 years old. He bought into the buy term...invest the difference idea (investments didn't work out). His term policies will end within the next 5 or 6 years and renewal or conversion will cost an arm and a leg. His wife feels exposed...what if he dies without life insurance???
Sometimes the best answers are not always the best results...we never know. There is only one certainty, and that is this...THE BEST TIME TO CONSIDER A LIFE INSURANCE PURCHASE IS NOW. (I am not only an agent, but one who is uninsurable...I know how quick things can change)
There is no one right answer.
Term is usually better if you can get it.
It is cheaper. You insure what you want and for how long.
Just popped out some kids? Insure yourself for 20 years until they get out of the house..etc. Just bought a house? Insure
yourself so that your spouse isnt holding the bag and forced to sell after you check out.
If you dont want to have to worry about getting more insurance later after your 16 year old gets pregnant and you have to raise another child for 18 more years, get some Whole life.
It is more expensive, but as long as you pay, you dont have to worry about having to buy another policy every ten years at much higher rates.
The downside is that it is more expensive. They tell you there there is a built in savings plan. With the accrued money, you could have them take your annual fee out of that, rather than pay out of pocket. It isn't a very good way to invest money. I liken it to people that use their tax refund as a way to save money. Yes, it is kind of dumb to not get interest on your money all year (as you overpaid each payheck), but for those that have trouble finding the discipline to save, it works.
The other nextative is that, while it doesn,t expire, and rates don't go up (monthly, yearly, etc), you end up paying more anyway. This is becase your 500$ a month is buying you 350,000 of coverage when you are 35, but your 500$ is only buying you say, 250k of coverage when you are 50. The reason for this is that your payout is now insurance plus your cash out.
If you had 100,000 of equity, your payout is still 350,000, but 100,000 of it is your own money, 250 is the insurance. By the time you are 85, you might have 300,000 in equity, but you are still paying $500 a month ($6,000 a year) for your remaining 50,000 of insurance.
I NEVER see any salesmen mention this factoid.
Some whole life companies will pay you a dividend if they are profitable.
Term is usually better if you can get it.
It is cheaper. You insure what you want and for how long.
Just popped out some kids? Insure yourself for 20 years until they get out of the house..etc. Just bought a house? Insure
yourself so that your spouse isnt holding the bag and forced to sell after you check out.
If you dont want to have to worry about getting more insurance later after your 16 year old gets pregnant and you have to raise another child for 18 more years, get some Whole life.
It is more expensive, but as long as you pay, you dont have to worry about having to buy another policy every ten years at much higher rates.
The downside is that it is more expensive. They tell you there there is a built in savings plan. With the accrued money, you could have them take your annual fee out of that, rather than pay out of pocket. It isn't a very good way to invest money. I liken it to people that use their tax refund as a way to save money. Yes, it is kind of dumb to not get interest on your money all year (as you overpaid each payheck), but for those that have trouble finding the discipline to save, it works.
The other nextative is that, while it doesn,t expire, and rates don't go up (monthly, yearly, etc), you end up paying more anyway. This is becase your 500$ a month is buying you 350,000 of coverage when you are 35, but your 500$ is only buying you say, 250k of coverage when you are 50. The reason for this is that your payout is now insurance plus your cash out.
If you had 100,000 of equity, your payout is still 350,000, but 100,000 of it is your own money, 250 is the insurance. By the time you are 85, you might have 300,000 in equity, but you are still paying $500 a month ($6,000 a year) for your remaining 50,000 of insurance.
I NEVER see any salesmen mention this factoid.
Some whole life companies will pay you a dividend if they are profitable.
The significant difference between whole and term life insurance can boil down to the fact that at the end of the day, a term life policy offers only life coverage. Unlike whole life insurance that adds on an investment component. This in turn makes whole life insurance policies much more expensive. This extra cost might make sense if the investments assured rich pay offs. But this is not always the case. Marketed as retirement funds or forced savings, it has to be said that there are several more effective ways to invest your money. Many of these policies come along with commissions and high fees. In comparison, term life policies are inexpensive. And if you are smart enough to purchase your policy when you are young and healthy, the returns far outweigh the modest premiums.
Does anyone know where can I find coverage for my 85yrs old mother. She used to live outside of the country but she moved here permanently and she has resident card.
submitted by timaru in Seattle, Washington
@ August 18, 2009 - 08:11 PM
My 85yrs old mom is very healthy with no health condition if anyone can find a life insurance coverage pls let me know at vosp1150@yahoo.com
But it is better to be more aware of what goes on within the Insurance Companies rather than not.
Clever how author John Patrick Lamont has explained so many truths within his novel "The Worst Kind of Lies." John's book has helped me become better informed and more involved in my financial planning so that I am not victimized. He draws upon fourteen years of experience working within the life insurance industry to write his novels. "The Worst Kind of Lies" reads more truth than fiction.
I'd check out his book before you check-in with an Insurance Company.