Term life insurance or Whole life insurance

aim-high · #1 (**permalink**) 10-27-2009, 05:57 AM

Hi,

I am 30 years old. I have been thinking about buying a life insurance and when I started doing the research , I am faced with the dilemma of choosing between Term life vs Whole life.
Here are my thoughts on this
a) I understand that life insurance is different from retirement plan so i am going to save enough for my retirement so myself and my dependants can live happily after I retire. At this point, myself and my spouse both work so we hope to save enough for retirement. Having said this, I think I would go for a term life insurance for 30 years from now just in case something unexpected happens to me between now and 60 years old. Beyond 60 years, if something were to happen, our retirement funds, hopefully, can help us.
I understand if nothing happens to me from now till 60 years, I wont get anything from the insurance ( I would like to confirm if this is the same with all companies who offer term life insurance ) ?

b) The other thought is whole life is I am completely covered until the end of my life. Of course, the premium would be higher and fixed. There is also some savings component to it which I believe I will get when I withdraw the policy.

c) Or, Should I go for Term life insurance now but then change to Whole life at some point between now and 60 years old ?

Any advise is appreciated.

disneysteve · #2 (**permalink**) 10-27-2009, 06:39 AM

Term - PERIOD!

Never, ever confuse insurance with investing. Keep the two things separate at all times. Stay away from whole life. Get a level premium term policy for 20 or 30 years. Premiums are very low and fixed.

boosami · #3 (**permalink**) 10-27-2009, 07:43 AM

Quote:

Originally Posted by disneysteve

Term - PERIOD!

Never, ever confuse insurance with investing. Keep the two things separate at all times. Stay away from whole life. Get a level premium term policy for 20 or 30 years. Premiums are very low and fixed.

Seconded. Using insurance as an "investment" is never a good idea. If you crunch the numbers you'll see that the earnings are never very much, if anything at all. Get term, and save the extra you would be spending on the other policy for REAL investing.

MonkeyMama · #4 (**permalink**) 10-27-2009, 09:35 AM

Agreed. Whole Life is easily 10-20 times the cost of term, AND the cash-out, from my experience, is pennies of what you even put in.

Anyway, we pay $500/YEAR for term coverage. I have seen quotes like $10k per year for the same coverage under whole life. You'd be much better off investing the difference saved.

glock35ipsc · #5 (**permalink**) 10-27-2009, 04:23 PM

Quote:

Originally Posted by MonkeyMama

Agreed. Whole Life is easily 10-20 times the cost of term, AND the cash-out, from my experience, is pennies of what you even put in.

Anyway, we pay $500/month for term coverage. I have seen quotes like $10k per year for the same coverage under whole life. You'd be much better off investing the difference saved.

I'm curious what your coverage amounts are for $500 a month. My wife and I each have $400k of term coverage, and we pay $80.50 a month for both.

aim-high · #6 (**permalink**) 10-27-2009, 07:34 PM

Thanks for all the responses.

Lets say that I go for a 30 year term life insurance. So from now till I am 60 years old , if nothing happens to me (by god's grace), Can I take the money out of the term insurance after the term completes ? Do I have any tax benefits ? Just like whole life insurance, does the company that I get term life insurance invests my money in stocks/mutual funds ?

Also, can you recommend a good company from which I can buy term life insurance ?

glock35ipsc · #7 (**permalink**) 10-27-2009, 07:56 PM

Think of term coverage like car insurance, you are paying for coverage until the coverage is cancelled (the term expires). With term life you are simply paying for the coverage at death to a dependent to cover financial expenses. And like car insurance, you don't get any money back when the "term" is completed. It's hard to say what the insurance company might invest their float into, but for you it doesn't matter. Insurance should never be used as an investment.

Term is cheap, buy a 20-30 year term policy and focus your investing desires on actual investments. If at the end of the term you are debt free and have several hundred thousand in the bank, consider yourself self-insured.

Try Term Life Insurance Quotes, Life Insurance for quotes.

glock35ipsc · #8 (**permalink**) 10-27-2009, 08:02 PM

I forgot, there are "return of premium" term policies available that will return your premiums if you survive the term, but they are more expensive than basic term. And basic term is still the best deal.

disneysteve · #9 (**permalink**) 10-27-2009, 08:54 PM

Quote:

Originally Posted by glock35ipsc

I forgot, there are "return of premium" term policies available that will return your premiums if you survive the term, but they are more expensive than basic term. And basic term is still the best deal.

Statistically, most people don't keep their term policy for the full term for one reason or another. I'm 45 and have changed my policy twice and intend to do it once more sometime soon. That's another reason why the return of premium policies are just another way for the insurers to make money on something that should be cheap and simple.

glock35ipsc · #10 (**permalink**) 10-27-2009, 08:58 PM

True, most all of them won't return the premiums unless you outlive the policy. I have read about some that will prorate a return, but I believe the premiums on those are even larger on those.

aim-high · #11 (**permalink**) 10-27-2009, 09:03 PM

Steve,

You said you have changed your policy twice. Do ppl change policies during the term of the policy to get a better rate on their premium ? I am trying to understand if I need to keep something in mind once I get a policy.

disneysteve · #12 (**permalink**) 10-28-2009, 06:42 AM

Quote:

Originally Posted by aim-high

Steve,

You said you have changed your policy twice. Do ppl change policies during the term of the policy to get a better rate on their premium ? I am trying to understand if I need to keep something in mind once I get a policy.

Two reasons:

1. Term rates have been steadily falling over the past 10 or so years so it made financial sense to replace an older policy to get a lower premium.

2. As you get older, your need for life insurance gradually diminishes so when I replaced my existing policy, I also reduced the coverage amount, which helped the premium as well.

MonkeyMama · #13 (**permalink**) 10-28-2009, 01:43 PM

Quote:

Originally Posted by glock35ipsc

I'm curious what your coverage amounts are for $500 a month. My wife and I each have $400k of term coverage, and we pay $80.50 a month for both.

OOPS! Typo. I fixed. (Glad you pointed that out).

My point was we pay $500 per year! Vs. $10k per year or so. Makes quite a difference... Term is so much more affordable because benefits are only paid out upon death.

We pay $500 a year for $1 mil coverage (locked in our term insurance in our 20s - 'tis quite cheap to get life insurance in your 20s).

$500/month? Yeah - that would be a whole life insurance quote.

glock35ipsc · #14 (**permalink**) 10-28-2009, 06:05 PM

Hahaha, OK, that's makes sense!

We pay $80 a month, so $960/year for a total of $800k coverage. Sounds like it's time for us to look in to a new policy.

aim-high · #15 (**permalink**) 10-29-2009, 06:04 AM

MonkeyMama,

Do you mind sharing which company is giving term for that rate ? I think $500 per year is very much affordable for me.

Thanks

gertymac · #16 (**permalink**) 10-29-2009, 09:10 AM

I've been thinking that my partner and I need to buy some additional life insurance, but I don't know a whole lot about the process. Currently, we're covered with a low amount through my employer.

Do they ask health questions? Would it be difficult for a young person with some previous health issues to get coverage or a decent rate?

MonkeyMama · #17 (**permalink**) 10-29-2009, 12:10 PM

Lincoln Benefit? We got the policy through a friend - Allstate insurance agent. $500 is for two $500k policies.

Low rate was due to young age, perfect health, and good timing I guess. Not sure you could do so well, today, necessarily. I'd shop around.

For a rate like that, they will do a health review. Will take your blood and ask medical history. The healthier you are, the lower rate you will get.

The thing about a term insurance policy, that lasts a number of years, is you lock in the rate, and have insurance if you develop future medical issues. This is why I would stay away from annually renewing term insurance. For those, they can drop you if you get sick, and rates tend to rise with time. I mean, it's better than nothing, but if you have a family that depends on you, I'd advise getting a 20-30 year term policy.

We have a 30-year policy, because we bought it squite young.

& as Steve pointed out - you can always drop a term policy, if your needs change.

ea1776 · #18 (**permalink**) 10-29-2009, 04:01 PM

I pay $35/month for 750K in coverage. TERM all the way.

My rate is guaranteed for 25 years.

I am 27, in good health. The company had someone come over to do medical tests and a questionaire to verify my good health.

I went through SAVINGS BANK LIFE INS. CO. OF MASSACHUSETTS.

I believe they specialize in giving low-rate coverage to folks in good health. No complaints so far, except they did try to raise the rate on me vs. the one they originally quoted. I called them out on it, and they changed the contract though. They also give guaranteed renewal options after the 25-year term. Hopefully won't need to renew due to my hopefully massive net worth. lol

aim-high · #19 (**permalink**) 10-29-2009, 07:55 PM

Thanks MonkeyMama and ea1776 for sharing the information.

maat55 · #20 (**permalink**) 10-30-2009, 02:44 PM

Quote:

Originally Posted by disneysteve

Two reasons:

1. Term rates have been steadily falling over the past 10 or so years so it made financial sense to replace an older policy to get a lower premium.

2. As you get older, your need for life insurance gradually diminishes so when I replaced my existing policy, I also reduced the coverage amount, which helped the premium as well.

To add, it is a way to extend your insurance period without waiting until your current policy has expired. For a few dollars more, you can add many more years, in some cases.