When it comes to life insurance, if you ask ten different life insurance professionals, whether they believe term or whole life is the better product, you’ll get about a 50/50 split in answers.
Actually, the debate about term versus whole life should take into consideration when the applicant plans to purchase the insurance and what their intentions are.
When to Purchase
It certainly makes a difference when you purchase the insurance. If you are a young adult with significant debt, the term would typically be the better choice because of the rates. You see, very few term policies ever ending up paying a death benefit when purchased by young adults. In fact, most policies rarely last longer than three or more years before they are converted to permanent insurance which results in very low rates. However, for older adults, whole life might be a wiser choice because of the lifetime death benefit, guaranteed monthly premium, and the cash value account that builds on a tax-deferred basis.
Why to Purchase
If the applicant is purchasing insurance to cover debt, college tuition, and replacement income, then term insurance will be the wiser choice, once again, because of the lower rates. If, however, the applicant is purchasing the insurance for final expenses, a family legacy, and to accumulate cash value, whole life is going to be a better choice. In the current economy, final expense policies are one of the most popular categories because seniors are looking for insurance that doesn’t require medical exams that will take care of final expenses, so they are not passed on to surviving loved ones. Hence, the term Final Expense insurance. Many carriers are now offering whole life policies with small face amounts that can be issued on a guaranteed basis up to age eighty-five.
Thanks to the internet and online shopping, we can make a comparison on which type of policy represents a better deal. Let’s compare term insurance with whole life for a 40-year-old male non-smoker with average health and a $100,000 death benefit:
Term Insurance Premium: $335 per year for a 30 Year Policy
Whole Life Premium: $624 per year for a Lifetime Policy
If he died at age 50: Term death benefit: $100,000 – Term cost of insurance: $3,350
Whole Life death benefit $100,000 – Whole Life cost: $6,240
Clearly, in this example, we see that the Term policy is a much better deal than the Whole Life. In fact, it would continue to be a better deal until age 70 when the term policy expires but the Whole Life remains in force.
You see, at age 70, to renew or purchase a new term policy for another 15-year term, the annual premium goes up to $1,100 per year while the Whole Life premium remains at $624 per year and has built significant cash value over the policy period.
So then, if the applicant is purchasing insurance as a younger adult with the intention of covering debt, college tuition, and replacement income; Term Insurance is the most economical choice. If, however, the applicant is looking for permanent insurance with a lifetime guaranteed premium, that will build cash value that can be accessed through a policy loan for any reason, Whole Life insurance is a better choice but, not always the most economical.