Life Insurance?:Term Life vs Whole Life

[Swampa]

There is some very bad info in this thread. Don't believe everything you read

[60 Deluxe]

I just don't agree with the renting vs owning argument. I am not renting my homeowners or auto policies and they are on a set term basis. I buy that coverage and I "own" it for the time that I have paid for. If you purchase a twenty year term life policy, you own it for twenty years, as long as you pay your premiums. If I am not mistaken, you do have the option to pay only one premium at the onset of coverage.

[Swampa]

Life Insurance?:Term Life vs Whole Life

I'm pretty sure that the rent vs own analogy applies as follows:

You buy a 20 yr term, you've got a locked rate for 20 yrs. if you don't pass during that time, the premiums you paid have nothing to show for.

If you buy a whole life paid in 20, you pay for it for 20 yrs but the policy is active until you die, cash it out, or if you live past 99 it will automatically pay out. Equivalent to selling a house/cashing out.

There is no policy that is a perfect fit for each person, it really depends on each persons situation. One thing I can guarantee is that there is about a 2% chance a term policy will pay out vs 100% chance a whole life policy will pay out.

Also, I'm not saying one or the other is the perfect fit for each person, but I do think a combination of the two is the best bang for your buck unless your a 20 yr old millionaire!

[TxAg]

I'm pretty sure that the rent vs own analogy applies as follows:

You buy a 20 yr term, you've got a locked rate for 20 yrs. if you don't pass during that time, the premiums you paid have nothing to show for.

If you buy a whole life paid in 20, you pay for it for 20 yrs but the policy is active until you die, cash it out, or if you live past 99 it will automatically pay out. Equivalent to selling a house/cashing out.

There is no policy that is a perfect fit for each person, it really depends on each persons situation. One thing I can guarantee is that there is about a 2% chance a term policy will pay out vs 100% chance a whole life policy will pay out.

so what's the price difference?

[Swampa]

so what's the price difference?

There definitely is a difference, but it depends on each persons age and health status. I could run an illustration for you Monday on an avg joe at a certain age for comparison

[TxAg]

There definitely is a difference, but it depends on each persons age and health status. I could run an illustration for you Monday on an avg joe at a certain age for comparison

I've done the math, and term is right for my situation. However, if you can provide that it would be a useful exercise for many on here.

[flywise]

I have paid thousands upon thousands of dollars on vehicle insurance and health insurance in my life and have never had a claim for more than $2000.
i pay the premiums in order to transfer the risk not to try and make money

[Thumper]

I like the idea of doing both. Term until age 60 or so, then whole life and annuities for the last picture show. jmo

[klepdo]

so what's the price difference?

$500,000 20 year term is $70 a month. $ 500,000 whole life policy is $ 817 a month. That is the rates based on a 42 year old non tabbaco user.
Term will cost me $16,300 for 20 years.
Whole life will cost me $188,000 for 20 years. If I live to age 90 I will get my mony back $ 441,800.
I'm sure you can get better prices but this was the first one that came up on google.

[Swampa]

$500,000 20 year term is $70 a month. $ 500,000 whole life policy is $ 817 a month. That is the rates based on a 42 year old non tabbaco user.

Term will cost me $16,300 for 20 years.

Whole life will cost me $188,000 for 20 years. If I live to age 90 I will get my mony back $ 441,800.

I'm sure you can get better prices but this was the first one that came up on google.

On a 20 pay, you should break even right at the 20 yr mark

[klepdo]

True or you could get the term and invest the $700 a month for 20 years and if you get a 9% return you would have $468,422. Stop contributing to it and don't touch it for 30 years you would have $1,108,925. I would rather make the money than have the insurance company make it. This way I have 20 year life insurance policy to pay for the house and help the wife if I die. If I dont die I have a good retirement started.

[60 Deluxe]

True or you could get the term and invest the $700 a month for 20 years and if you get a 9% return you would have $468,422. Stop contributing to it and don't touch it for 30 years you would have $1,108,925. I would rather make the money than have the insurance company make it. This way I have 20 year life insurance policy to pay for the house and help the wife if I die. If I dont die I have a good retirement started.

This was my plan. Two market crashes and lots of bad advice from financial planners cost me three hundred grand and ten years of investment time. That makes the million plus more like a few hundred grand. Time is money. But...we are not discussing the other life events that change the need for insurance and they need to be factored into what your insurance needs are now and will be twenty years from now. The kids grow up and support themselves. The house is paid off. The wife gains some traction in her job and can support herself. The need for life insurance goes away for prudent people sometime in middle age if they want it to. It can be a planning tool for wealth management but most of us will not attain wealth so that is not a concern.

Life insurance is only one part of a successful financial plan. Avoiding debt, paying off mortgages, staying away from car dealerships, and not trying to keep up with the Joneses will go a long way in providing for your loved ones if you die early. We passed the point in life about twelve years ago where all the kids were raised, educations paid for, house paid off, no car payments, ranch paid for... I just cannot see purchasing life insurance in my situation. It would just be stacking up money to pass on. That has never been a goal of mine, nor do I want anything passed on to me when my parents die.

[klepdo]

This was my plan. Two market crashes and lots of bad advice from financial planners cost me three hundred grand and ten years of investment time. That makes the million plus more like a few hundred grand. Time is money. But...we are not discussing the other life events that change the need for insurance and they need to be factored into what your insurance needs are now and will be twenty years from now. The kids grow up and support themselves. The house is paid off. The wife gains some traction in her job and can support herself. The need for life insurance goes away for prudent people sometime in middle age if they want it to. It can be a planning tool for wealth management but most of us will not attain wealth so that is not a concern.



Life insurance is only one part of a successful financial plan. Avoiding debt, paying off mortgages, staying away from car dealerships, and not trying to keep up with the Joneses will go a long way in providing for your loved ones if you die early. We passed the point in life about twelve years ago where all the kids were raised, educations paid for, house paid off, no car payments, ranch paid for... I just cannot see purchasing life insurance in my situation. It would just be stacking up money to pass on. That has never been a goal of mine, nor do I want anything passed on to me when my parents die.

I agree with you. The only reason we have life insurance is for two needs. One is to pay off our mortgage 15 years only have 13 left and two is to send our son through college. If for some crazy reason I hit it big and have a $10,000,000 ranch the last thing I'm worried about is if my son can pay the taxes when we die. I'm raising him to provide for himself not to vote for a living.

[Burnadell]

I know where you stand from having this come up before.....

I'm not sure you do know where I stand. In the previous thread, I never stated a preference for one type of life insurance over another...because...it depends on the individual circumstances and the individual person's financial picture, etc. That thread started asking about life insurance on children, and some folks made blanket statements that, in my opinion were wrong. I also never specifically advised the poster to buy it. I merely said that life insurance on children makes sense for some folks. Insurance and investment decisions should individually made based on each person's situation, and I simply (and maybe passionately ) tried to make the point that insurance on children is the right decision for some.

That would be health insurance.

Or

in regards to having money for medical problems.

the "INVESTMENT" ....where would you invest?
market returns (at 10%-12%) vs the whole life (4%).
Life insurance is a BAD "investment".

Still doesn't add up.

Perhaps you (and others who have made inaccurate statements) don't realize that there are permanent life policies that earn stock/bond market rates of return. These are called Variable Universal Life (VUL) policies where the cash values are not interest bearing but rather invested in a package of mutual funds, essentially eliminating the large difference in the earnings of the cash account.

I understand completely. I am a former Wholesaler for a Mutual Fund Company.

Back in the day, our funds carried some very heavy front end loads and outrageous expense ratio's. It was always promoting the fund of the day/week/month/ etc.

What mutual fund company did you wholesale for?

It's why I am such an advocate of low cost Index Fund Investing for most (not all) people.

Can you please explain why? I never understand why people recommend investing in index funds. Generally they say because 80% of the funds don't beat the index. So.....(this seems so obvious )...WHY NOT BUY THOSE FUNDS THAT REGULARLY BEAT THE INDEXES???


Back to the original issue of term vs permanent .

For the record, I NEVER have said that permanent insurance is better than term. In MANY cases, and perhaps MOST cases, it is not better, and I do not prefer permanent over term...unless the individual situation makes it a better fit for that particular client! It all depends on the individual's needs/wants/financial/family circumstances. I just cringe when I see people make blanket recommendations without knowing all of the facts! What may be right for them does not make it right for everybody. I will never make an investment nor life insurance recommendation based on the information generally posted here.

Queue AtFullDraw to come in and give us more inaccurate info on life insurance licensing and tell us how he does it and why what he does for himself is right for everybody else.

[Atfulldraw]

just so I don't disappoint Randy!

Here's what I would do in your shoes.....keep your term and shop for a different whole life policy. Then compare the cost of converting. If it's been ten years, then you probably need to at least evaluate your life insurance situation anyway. The answer may be to buy more term, or it may not be.

Even Burnadell won't argue with me that it's better to buy insurance early rather than later.

Much like him, you aren't getting any younger....

For what it's worth.....I bought young, I staggered terms, 20 and 30 years, and bought some whole and some universal as well.

and yes, there are some really poorly informed licensed agents out there.
And a few on this thread who seem to think they have a license.

I don't sell anything, but I have managed to buy some really good policies over the years without paying a load of fees.

When you have so much money that you run out of tax-mitigated places to put it, exotic solutions can start to make some sense.
Those solutions are not about relatively short-term (10 years, as the OP stated) protection of a loved one from a particular debt burden, they are about the next best place to save money after you have used up the better places.

spot on.

What works for one person isn't necessarily the best for you.

I know a client that pays for a life insurance policy for upwards of 75K a year.
She just keeps on hanging on.....but that amount is only about .5% of her net worth.