Does anyone know if whole life insurance is better than term life?

[Mobley]

Say your in your late 30’s and completely healthy, have a term life insurance for 250k for 20 years and you dont die in 20 yrs, your now close to 60 and have to start over dont you?
Any advice would be helpful!
Thanks!

[disneysteve]

"Does anyone know if whole life insurance is better than term life?"

Absolutely not! For 99.9% of the population, whole life is a HUGE rip-off. What you want is term coverage. It is way cheaper for far better coverage.

In your scenario, at age 60, you don't need to "start over" because by then, your need for insurance should be minimal or non-existent. Your kids will be grown and out on their own. Your house will be paid off or nearly so. And you will have savings built up to cover funeral expenses. You won't need insurance any more.

[jIM_Ohio]

The issue is "why" do you need insurance and "how much" you need.

When you go from that angle, it's of "high probability" that term is cheaper "most of the time".

The cases for PERMANENT insurance would be if someone is thought to have a fatal illness or family has a history of debilitating diseases and someone else depends on the person thought to be sick.

For example if two people are in their 30's, and only one works (or one spouse earns 75-90% of household income) and most retirement assets (such as a pension) will be in that spouses name, and that family has a history of dieing young or getting sick, the other spouse might need insurance on that spouse their whole life (and not just while working).

Term insurance is great to replace lost wages from death (meaning if I die, the term insurance my wife has on me is a great way to replace my income). By time we retire, our expenses will be less, kids will be out, and retirement assets quite high. So we only need insurance later in life for a smaller amount of expenses, and for a much shorter period of time.

[disneysteve]

For example if two people are in their 30's, and only one works (or one spouse earns 75-90% of household income) and most retirement assets (such as a pension) will be in that spouses name, and that family has a history of dieing young or getting sick, the other spouse might need insurance on that spouse their whole life (and not just while working).

Jim, I'm not following your thought process here. How would whole life be the better choice in this scenario? The insured would need a high amount of coverage which would be 1/20th the cost with a term policy vs. a whole life policy.

[jIM_Ohio]

Jim, I'm not following your thought process here. How would whole life be the better choice in this scenario? The insured would need a high amount of coverage which would be 1/20th the cost with a term policy vs. a whole life policy.

Term ends
if the insurance need does not end, the choices would be

a) fund term, then when the policy expires, apply again (need to pass underwriting)
b) fund permanent, knowing it is underwritten once, then it is in force for rest of life

My agent showed me numbers for a situation like this

We pay about $50/mo for $500k each (might be less, that might be both spouses too) for term.
When policies expire (about age 50) agent showed me rates for term for a 50 yo male with same health stats- price might triple?? So $150/mo?? Might have been $250/mo? Its been a while since I looked at the chart he gave me.

The policy to fund a permanent policy now is much much less than $150/mo

Its much much higher than $50/mo though. And he told me I qualify for the permanent policy now- so there is no guesswork as to my state of health at age 50-55 when my term policy lapses.

So you have to weigh the costs of

$50/mo for 240 mos (20 year term)
then $150/mo for 120 mos (10 year term) (number is an educated guess)
then $1000/mo for 120 mos (10 year term) (number is a SWAG guess to prove my point)

or just pay $250/mo now for rest of my life. Which is cheaper and which has less risk? Permanent to me has less risk if the risk is for all of my life.


Keep in mind, this does not apply to me- Generally speaking both spouses work, so one is not dependant on a pension for the other. Retirement accounts can be transferred to living spouse.

But some pensions are specific to one spouse, with NO survivor benefit- how do you plan around this contraint? Insurance on the working spouse until the other spouse dies is the best way IMO.

[jpg7n16]

In the case you present Jim, a convertible term policy would be better. Or better yet, a guaranteed renewable clause.

Get the term rates now, and if you become uninsurable (before you are able to begin a 2nd term policy) and still have need of a life insurance policy, then you could convert your term policy into a whole life type. Or have a clause that guarantees you being able to renew the policy when the term ends if needed.


That extra $100/month you're paying would have grown to substantially offset the insurance need if you buy term and invest the difference. Or the investment growth could be used to offset the higher cost of premiums upon renewal.

[disneysteve]

Jim, I guess where I'm not following you is on the amount of time you'll need coverage. If, as you said in your first post, there is a concern about dying young, then the term policy would be the better deal since the person won't live a normal lifespan and there will have been no need to pay the higher cost.

If the person doesn't die prematurely and lives a normal lifespan, then the need for insurance should fade away and the term policy will still be the better deal.

[jIM_Ohio]

Jim, I guess where I'm not following you is on the amount of time you'll need coverage. If, as you said in your first post, there is a concern about dying young, then the term policy would be the better deal since the person won't live a normal lifespan and there will have been no need to pay the higher cost.

If the person doesn't die prematurely and lives a normal lifespan, then the need for insurance should fade away and the term policy will still be the better deal.

Think of someone which has diabetes run in their family. Based on the limited info I know, its possible some people do not get diabetes until they are 60 or 70... It does not run in my family (I don't think) but I know the ongoing health costs and complications it causes are significant.

If my family was like that, and I was only wage earner for my family and I had a pension (lots of ifs), I might be able to get term at age 25, but my rates shoot up at 45 or 55 if I am diagnosed with diabetes.

I am sure you could make a similar case for diseases like Parkinson's or similar- once you are diagnosed with the disease your almost impossible to insure- breast cancer could be another example.

If one spouse is dependent on the "sick" (or spouse which one might be anticipating is going to get sick), I used a pension which is not transferable as a good example- then you need to insure the spouse for the value of the pension (ie if pension income was 30k, then 25X that amount is 750k and insurance is needed for 750k at age 65, and that need goes down over time). The need is FOR LIFE, not for a specific amount of time, and that is the key distinction I make.

JPG offers other alternatives. If something like an equity indexed universal life product is used, its possible its still cheaper to do the insurance (once) than the guaranteed renewable options. There are probably "timeframes" where the invest camp makes most sense, but there might be other timeframes where it was cheaper if the permanent insurance technique is used.

[dahoov2]

I was sold a whole life policy on my kid and grandchild when they were born and I went with it because it was cheap and the annual premium is the same through the rest of their lives. In the very end, it's not worth it from the fact that when they reach like 60, the policy then starts to cost more than you paid. In addition, the amount you get did not keep up with inflation.

My son's policy was started in 1983 when he was age 0 and the premium is about 100 dollars a year for a 10,000 dollar policy. I used the "dividends" it gets to lower the cost of the policy annually and last year, we paid less than 50.00 for the year. But he's only 26. In addition paying for 60 years 100 dollars a year is 6000 dollars; but the estimate of what I end up with is a lot less. It'd be like 1,000 dollars inflation included which might by then pay for an ad in our local newspaper! In essence, though I got a great deal and in my particular case the amount will not exceed the amount I pay unless he lives past age 100, the inflation factor makes it a poor choice.

We are currently looking for a term policy. Every 15 years, you can up the amount and keep up with inflation. It costs more, but the amounts you get are proportionately more.

Besides, Suze Orman says so!

[JohnSaveOn]

I agree with Jim. For most, whole life insurance is completely unnecessary and far too expensive. Unless your yearly salary is extremely high, term life insurance is the best option. The fact is, most term life insurance policies run out, and are never cashed in. This may seem like a waste of money, but compared to the yearly cost of whole life insurance, you are actually saving money on comparable coverage.

[disneysteve]

I was sold a whole life policy on my kid and grandchild when they were born

Insurance policies on children are one of the biggest rackets in the industry. They play on your emotions and scare you with all kinds of what if scenarios so you forget what insurance is actually for - to replace lost income. Unless your kid is a movie star, there is probably nobody financially dependent on him or her. It would be tragic if they died young, but other than paying a few thousand for a funeral, there would be no economic loss.

[savana]

As far as I know term life insurance is more better than whole and many people give much preference to term life policy as, it is a life coverage and on the death of the insured person it pays the whole amount and you can buy term of periods one year till 30 years. Apart from all these whole life is little expensive in comparison.

[puck36]

Say your in your late 30’s and completely healthy, have a term life insurance for 250k for 20 years and you dont die in 20 yrs, your now close to 60 and have to start over dont you?
Any advice would be helpful!
Thanks!

If you take the amount you are saving by getting term insurance and invest it you should have enoght money that you don't even need insurance anymore when you turn 60. Even if you don't have that money when you turn 60 you just get term insurance again and it will still be cheaper than whole life. Whole life is just a rip off insurance. Invest the difference between whole life and term and you should come out good in the long run. Hell you have 30-40 years to invest that money.