Whole Life Insurance vs Term Life Insurance which one is best?

What is Whole Life Insurance?

Whole Life insurance is a combination of life insurance with an investment component that adds up to creating a cash value that can be withdrawn later in life. While the life insurance part of a Whole Life policy is self explanatory, the added investment component has some variables.  You set when you would like to start taking the cash value payout of a Whole Life Insurance policy.  While the premiums for a Whole Life Insurance policy is typically higher than a Term Life Insurance policy, the higher premiums go towards the cash value (investment component).   Let’s say at age 63 you would still like to collect a paycheck without working.  You can set your Whole Life Insurance policy to payout a given amount at age 63.

What is Term Life Insurance?

Term Life Insurance is an insurance policy that provides death benefits only.  Meaning this is for the love ones you leave behind.  The premiums are low compared to Whole Life Insurance because there is no investment component to a Term Life Insurance policy.  Term Life Insurance policy terms can vary, but some go up to 35 years.

Which Insurance is Better – Whole Life vs Term Life

The rule of thumb recommends your insurance policy cover 10x your annual income.  If you have other investments for your future then maybe a Term Life Insurance is best for you.  However, if you are self employed and looking to invest in your future a Whole Life Insurance policy can take care of two birds at once.  Here is a comparison of Whole Life vs Term Life in dollars and cents.

Joe and Mary Doe opened a Whole Life Insurance policy paying a monthly premium of $218 dollars.  At age 65, the Doe’s would have $150,000 each as a death benefit and $150,000 payable for their everyday living (which could be divided and payable monthly or yearly) and no more monthly premiums to pay.

Joe and Mary Doe opened a Term Life Insurance policy paying a monthly premium of $67 dollars.  At age 65, the Doe’s would have $900,000 payable to the surviving spouse if they keep making the monthly premium.

The big question is “Can you invest your money better”.  If you talk with an insurance expert and they offer a better interest rate than you could get else where, Whole Life Insurance maybe for you.  However, if you can get a better interest rate then having a lower premium for life insurance maybe best.  Remember a Term Life Insurance will only last as long as you are paying the premium.  If you have another investment plan for your retirement, include your Term Life premiums.

Life Insurance FAQ

Here are some tips to keep in mind when you are purchasing life insurance, whether Whole Life or Term Life.

• Is your youngest child 23 yrs old?  If you are a single parent and your child is 23 or older, than decreasing or dropping your life insurance maybe in order.  Most children 23 and older are no longer dependent on your salary.  However, if your child has special needs or a special circumstance exist you may want to keep the insurance.
• Is your mortgage and debts paid off?  If you still have a mortgage upon your death your love ones may pay off your mortgage and other debts with the proceeds from the life insurance.
• Do you have enough to retire or a financial plan in place?  If you have a financial plan in place to live comfortable in retire then you may want to drop your insurance policy.
• Is your spouse still depended on your income?  If your spouse depends on your income then keeping the insurance policy maybe best.

All situations require different solutions, please consult a financial professional to help determine what is the best solutions for you and your love ones.

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