Term life insurance or whole life insurance?
57A look at whole life insurance and term life insurance
Determining the difference between whole life insurance and term life insurance
You know you need life insurance. But it can become difficult when it comes to choosing between whole life and term life insurance. Each has advantages and disadvantages, and it is important to carefully consider your needs as you decide which would be best for you.
Term life insurance
Term life insurance is a type of insurance that only covers you for set period of time: 10, 20 or 30 years (sometimes even 40 years). This insurance expires unless renewed at the end of the term. The main advantage to this type of insurance is that you can get a great deal of life insurance coverage for a small amount. It is not uncommon to be able to get $100,000 worth of coverage for a few dollars a month, depending on the term you choose and other factors.
Some term life providers are offering a partial refund of premiums payed for those that finish off their term.
Whole life insurance
In reality, there are a variety of insurance options that could be considered whole life. These are policies that cover you for your entire life, and will not lapse unless you stop paying the premium. The main advantage to these types of insurance is that they can accumulate cash value. Options like variable life and universal life allow you to make different investment decisions with a portion of your premiums. However, you should be aware that whole life insurance costs much more. Additionally, some whole life insurance plans allow you to borrow against them.
Many people like to have a combination of life insurance coverage. However, it is worth noting that unless you pay a large premium, the cash value of whole life rarely adds up to much. Other investments might be wiser.
More on Life Insurance
- How Much Life Insurance
Deciding how much life insurance you need. - Life Insurance Overview
A look at different life insurance options, and their pros and cons.
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I do agree that, as I said in the last paragraph, there are other investments that could be wiser in terms of larger returns. However, I am happy to have universal life. My coverage, and my husband's, is smaller in the universal catgory than in the term category, but we are glad to have both. With what we're putting in, we will be able to take a nice vacation when the kids are gone and our term life insurance is close to ending. It's our way of a slightly safer investment providing us with something "fun" to do to celebrate the beginning of a new phase of life. Specific (and attainable!) goal setting is an important part of financial planning. And the term coverage will cover paying off the house and providing a base if something happens to one of us.
Both my husband and I are happy to be well educated and trained; either of us can provide (and we both contribute) to our family's finances. You are right that it is essential for women to have training as well. As a devout Christian, I so often see women who think that raising children automatically negates the need for a good education and for obtaining marketable skills. This fallacy is one of tragedies of the current movement to "get back" to "Christian" values.
I had three whole life policies from shortly after college until my children got out of school. I borrowed against them for college expenses. Since then I've cashed them in and sent the money to Vanguard. I agree the savings feature can be worthwhile. Now we have only one insurance policy which was provided by my former employer--3x my final salary and no premiums. However, it's not funded so it's only a paper promise good only so long as the company is solvent and doesn't decide to cancel it. I retired about ten years ago with a defined benefit pension which has not been increased and will never be increased. The payout of my 401k (now an IRA) is larger than my pension plus Social Security. We saved ten percent for 35 years plus a company match which varied from time to time, and we never withdrew anything and never borrowed against it. I don't know how the current generation who don't have defined benefit pensions are going to pay their bills after they retire. Maintaining our lifestyle in retirement is based on my pension, Social Security and the payout of my IRA. (Plus my wife and I still work part time.) In my opinion, a comfortable retirement requires careful planning and disciplined saving and investment starting early in one's career. Otherwise there may be a day of rude awakening.
(You have a beautiful family.)
You are absolutely right, Ralph! Planning is VERY important, and the younger one starts, the better. You seem to have made all the right moves. And thanks for the compliment to my family :0)
Miranda, I appreciate your overview of term life insurance and permanent life insurance.
I believe that term life insurance offers more advantages for the average family that makes a middle income or lower income, because many times it offers the most coverage at the lowest premium.
But, I can see that need for whole life insurance if you definitely expect to need the protection your entire lifetime.
Miranda,
You have very briefly mentioned the combination of Term Life and Whole Life Insurance policies. The so-called Universal life insurance really provides a mix of the two coverages. This coverage is considered to be most flexible form of life insurance; you can vary your monthly deposit, choose a level or increasing death benefit options. I don't really agree with you that this combination is of the two previously mentioned options would be useless. As for other general advice related to life insurance policies, make sure you check up on the available riders and benefits, but be aware of the fact that many agents will be trying to get you to pay as much as possible, so consider if you REALLY need them.
Another option is guaranteed-issue or graded life insurance: http://www.gamacdonald.com/gradedlife.html
Term usually works best during the years the kids are growing and you have college to think about,house payment,etc. After that a basic burial plan would suffice as your money is better drawing interest.
Ralph Deeds Level 6 Commenter 5 years ago
In my opinion, term life insurance for the period when you really need it is a better option for most people, if they can discipline themselves to put the difference between the premium for term insurance and whole life insurance into a good no load, low cost index mutual fund. No load index mutual funds are a better savings and investment vehicle than whole life insurance because there is no big salesman's commission up front and the return will probably be better.
Even better than life insurance is for BOTH spouses to educate/train themselves so that they will be able to support themselves and any dependents in the event of the death of their spouse. Term insurance is useful when there are children at home. I see little need for any insurance, term or whole life, after the children are out of school and supporting themselves, assuming that both spouses are working or capable of working. An exception to this generalization is that life insurance can have a useful role to play in estate planning for wealthy people. That's another topic on which I am not qualified to comment.