Are you trying to decide between whole life insurance and term life? Understanding the differences between term life vs whole life is a great first step in the life insurance buying process.
In this post, we will go over the top reasons Whole Life insurance might be a better purchase compared to term life.
Is Whole Life Insurance Better Than Term?
There are several reasons why whole life might be a better option for your coverage goals.
You should consider your age and whether or not term life is a good choice. Term life insurance runs for a certain period of time and then the life insurance policy ends. If you are young, you will have to start a new policy which could cost you more once your original policy ends. Another reason Whole Life insurance can be better is the overall cash value of the policy. Although Level Term Life Insurance is frequently the best choice, this post will provide examples that might have you re-thinking and choose Whole Life instead.
Is Term life better than whole life insurance?
Term Life Insurance is usually more affordable, especially when you are young and looking for a policy for the first time. Term Life is a great choice if you want to protect your family and loved ones should you pass away early on. It’s also a great deal less expensive if you want to ensure your mortgage is paid off and your children will be protected. You can get a 20 or 30-year term life policy that is very affordable and will give you the protection you are looking for.
Life insurance requirements change the older you get
In general, the older you get, your insurance requirements will decrease. For example, your children will grow up and take off on their own. Your mortgage has been paid off. You will retire and therefore the need for replacing your income will drop significantly. So, at some point, you will want a policy that is not as demanding.
Many financial advisors believe getting a term life policy is more affordable and will provide the coverage you need. If you have a 30-year term life policy after it ends you and your spouse will probably have retirement investments to live on and your children have grown up.
School Of Thought: Buy term and invest the rest
Why spend more on life insurance that at some point will end when you could take that extra money and invest it in your future once the plan is over? In theory, you and your family would be better off with a term life policy and invest the savings you’d get between term life and whole life. Your investment will net more returns than throwing that money into a whole life policy. This philosophy can be used in many situations.
- Why eat out at a restaurant when you can eat at home and use that extra money to invest.
- Stay away from the movie theatre and wait for them to come out on Netflix or get them through your cable provider with their Paid To View option.
- Take a bus or ride a bike instead of paying for fuel.
Unfortunately, most people do not have the discipline to take the extra money and invest it over the next 30 years. Chances are, you will find something else to spend the money on.
If you are one of the disciplined ones – Bravo!
You could apply this philosophy for choosing Term Life Insurance over Whole Life Insurance. That said, before jumping on the Term Life Insurance train, you should consider the advantages of getting Whole Life Insurance instead.
Is Whole Life insurance a better investment?
There’s no doubt that over 90% of insurance policies sold at Life Insurance Blog are term life policies because they are the best option for most people. But the fact is, there is still a 10% ratio that is not convinced that Term Life is the best choice. Even though many established insurance companies and TV personalities advise people to go with term life instead of whole life, there are those that disagree.
We will go over reasons why whole life might just be the better option for you:
Consumer Tip: Life insurance agents will earn higher commissions on a cash value whole life insurance policy than on a term life policy. Therefore, when trying to decide which policy will work best for your needs, there are some questions you should ask yourself.
- Am I being pushed into buying a policy I don’t need and does whole life make sense for me at this time?
- What are the odds that I will need life insurance until I am 100 years old?
On the other hand, whole life might give you some incredible savings. We’d suggest you Google and search the infinite banking concept that will give you something to think about!
If you are considering a cash value life insurance policy, you need to know if it will be your best option for the kind of coverage you are looking for. Take some of these reasons into consideration:
Do you want coverage that lasts your entire life?
The difference in cost between whole life and term life is actually small. Yes, you will pay a little more for whole life but it’s really not that much.
With whole life, you can use your policy as if it is your own personal bank. Whole life covers you over your entire life and offers some excellent features that make it a high selling point. Along with lifetime coverage, a portion of your life insurance payments go into a cash value account that grows over time and is tax-deferred.
The cash value grows very slowly at first and then picks up speed later on. Some policies grow faster than others which is why you should sit down with your insurance agent to see the differences. The bottom line, this is a major reason why whole life insurance premiums are higher than term life.
Many people choose to use their cash value to pay off their premiums but if you choose to take the cash value, you have to continue paying your premium to keep your policy going.
If you need a loan, for some reason or another, you will have to pay it back with interest but the rate is usually lower than a loan from your bank. You can also opt not to pay it back but if you choose this option, the interest and the money you owe will come out of your death benefits when you pass away. This option is something you should take into consideration because your beneficiaries could end up with a great deal less depending on the amount you withdrew.
15 reasons why whole life insurance is better than term life insurance
Let’s look into the top 15 reasons why a whole life insurance policy could be a better option compared to term life.
1. You’re over 50 (or close to it)
One of the significant problems with a term life insurance policy is that your premiums go through the roof as you approach retirement age. If you take a 20 or 30 year term policy, you have a good chance of outliving your policy. If you want coverage after the term expires, you’re looking at extremely high premiums. If you need lifetime coverage, you’ll want to do that before you reach age 50.
2. Liquidity issues with an estate
If you’re part of the top 2% that owe federal estate tax or state estate tax (much more than 2%)- you typically don’t have extra cash laying around to easily pay the tax no matter how wealthy you are. An example of this was back in the 90s when Joe Robbie, the owner of the Miami Dolphins passed away, his family had to sell his NFL franchise because Joe’s family owed $47 million is estate taxes. That’s right, the federal government got that $47,000,000!
If you have a large estate, your estate planning lawyers and/or financial advisors will recommend purchasing a whole life insurance policy for tax purposes. Life insurance can help you if there are significant taxes being placed on your estate when you pass away. A whole life insurance policy can be used for leverage in estate planning. Whole life is an excellent way to maximize your estate. If you have a net worth above the federal estate tax exemption level of 5.45 million dollars or combination of $10 million. Having a fixed life insurance trust not only makes a great deal of sense but can save you a great deal of money. If you need a whole life insurance policy to protect your assets, give us a call! We’d be glad to offer you the very best options.
3. Your child is a college student
Many parents who have a child in college are looking for smaller policies around $100,000 to $200,000 for their child. In many cases, these policies are used to allow your child to get students loans or for covering other debts should something happen to you and your spouse.
When comparing a 20 to 30-year term life policy to the cost for whole life, it is often more reasonable to get a cash value life insurance for your child that, at some point, you can hand over to your child and they will make the payments from then on.
What about a 529 College Savings Plan vs Whole Life?
A 529 college savings plan is designed to encourage saving for the future costs of college. This plan is also known as a qualified tuition plan and sponsored by states, educational institutions, and state agencies. 529 is the section in the Internal Revenue Code.
If you are considering this plan, keep in mind that you can use the cash value in your whole life insurance policy instead of the 529 plan. The advantage to whole life, it will not affect your child when he or she applies for a FAFSA student loan. With a 529 plan, you cannot use the money any way you want and the cash that is in the plan can actually hurt your child’s chances of qualifying for Federal Student Aid.
4. You want to buy life insurance for your children
A whole life insurance policy might be a better fit if you’re purchasing coverage for your kids. When your children are young, the life insurance premiums will be very low. The other bonus is that the whole life policy will grow cash value. If you do opt for a term life policy, make sure it has conversion options so you have the choice to convert to a whole life or another permanent product when it’s available.
Giving to a charity that is near and dear to your heart is wonderful. Using a whole life insurance policy can make sure your goal of providing to your charity does not disappear in 20 or 30 years like it could with term life. Another bonus is that depending on who owns your whole life policy, the premiums paid just might be tax deductible or when you pass, a deduction of your estate taxes.
6. When Grandparents become the caregivers of the grandchildren
Many grandparents will start looking for life insurance just in case they may need to take care of their grandchildren. A grandparent may take a life insurance policy out on their child if they happen to be a young parent. If their child were to pass away, who would be the caregiver? One of the most popular plans is from Gerber life. Gerber’s Grow Up Plan is a great way to start providing your child’s financial security. This is a whole life policy that provides life insurance benefits up to $50,000 and builds cash value over time.
Grandparents are concerned that if something happened to you and your spouse, they will become the primary caregiver to their grandchildren. In some cases, grandparents will opt for a cash value whole life policy that will cost slightly more than term life. In many cases, they would prefer to have a better policy versus saving money for a term life for their grandchildren.
Never use whole life insurance as an investment vehicle. It’s focus should be on providing a life insurance benefit. However, some people who have done everything that their financial advisors have instructed want to diversify as much as possible. This isn’t a great reason to purchase Whole Life, but there are many buyers who purchase it just for this reason.
8. Needing limited coverage
Some people do not need an expensive life insurance policy. They do not have children, are single and just started thinking about insurance later on in life, and only want to ensure their burial expenses will be paid. You might wonder why someone would opt to pay for a premium that offers only $3,000 to $25,000 in life insurance coverage? After many years of hearing from people looking for smaller plans, there are literally thousands of individuals who only want small burial life insurance. Not everyone’s needs are the same. If you are single and getting up in age, you might want to ensure you will have your burial expenses paid instead of family members having to cover the costs. If you are married and your spouse passes away, you don’t want to ask your friends to help bury your loved one. Burial life insurance is something you should look into and talk with your insurance agent to find the perfect plan for your needs.
9. I Don’t want to pay burial costs for a relative
Many people are concerned that if their father, mother, sibling, or another relative passes away, they will have to cover the costs of their burial. It makes perfect sense that they purchase a small policy so they will not have to pay the funeral home’s costs out of pocket.
10. You’ve been diagnosed with a medical condition
There are many people who did not purchase a term policy when they were young and healthy. Now that they are older and shopping for a life insurance policy, they might have a health risk or preexisting condition that makes coverage unaffordable. They waited too long to purchase a policy or had a term life policy that is getting ready to expire. Basically, they are not insurable.
These people, at a young age, were diagnosed with Cancer, Type 1 or Type 2 diabetes, a congenital heart defect, or any number of other pre-existing health conditions. It would probably be smarter to get a whole life insurance policy rather than run the risk of never qualifying for a standard life insurance policy, later on.
11. Conversion options
A convertible term life insurance policy will let you convert all or some of the face value to a permanent life insurance and not having to take another medical exam or answer health questions. These options will give you low cost and the flexibility of term life insurance with the protection of whole life if something arises.
12. Your family history
In many cases, this is actually pretty easy to figure out. If you have family members who take medications for cholesterol and have since they were 45, chances are you will have the same issue down the road. While cholesterol is not particularly funny, it’s not as serious as many other diseases. For people who believe they may have an increased risk for a particular disease when they hit a certain age, it might be a good idea to purchase a whole life policy before the condition sets in. You can also choose a no exam whole life insurance policy in case you have a health issue that does not show any symptoms.
13. You’re a parent with a child with special needs
Your special needs child doesn’t need a “lump sum”, but a 3rd party special needs trust. Whole life is a great choice if you are a parent who has a child with special needs and an existing special needs trust.
There are many parents who have a child with special needs and they are very concerned about who will take care of their child should something happen to them. Parents with children who have special needs will look into a whole life insurance policies so they never have to be concerned about outliving their insurance policy.
Survivorship Life Insurance is an excellent permanent coverage that is a great deal more affordable than coverage for both parents. This policy covers both parents but only pays the death benefit after the remaining parent passes away.
14. You’re a business owner
You own a company or business and you want to make sure your successor is taken care of. Let’s say you have a partner and they die. You are now sharing the ownership of the business with your partner’s family. Should you buy a cheaper term policy? Possibly, but what if your company lasts over 30 years and now you or your partner are now uninsurable? Choosing the right business life insurance policy will be extremely important to your company.
A Buy-Sell Agreement is an agreement that is legally binding between co-owners of a business and how it will operate should one of the owners pass away, or they either are requested to leave the business or choose to leave possibly for retirement. In many cases, a business will choose to take out a permanent cash value life insurance policy such as an Indexed Universal Life policy for anyone in question rather than trying to figure out the appropriate length of time later on.
Another alternative is the Key Person Business Life Insurance policy that works really well with either whole term or term life. There is no one size fits all when thinking about this coverage because there are countless different scenarios. You should sit down with your insurance agent and look at all your options before making a final decision.
15. You only qualify for whole life
There are many reasons why someone might be interested in getting a whole life insurance policy, but what if you only qualify for a specific policy? We will recommend a cash value whole life insurance policy that you will qualify for, so give us a call!
For many people, qualifying for term life insurance isn’t an option due to their current medical situation. They will not qualify for a traditional term life insurance policy but the Gerber Guaranteed Life Insurance policy does not require a medical exam or having you answer a lot of health questions. It is, however, an excellent option that you should look into.
We have gone over the differences between Term Life and Whole Life insurance and what might work best for you. Knowing exactly what policy is right for you, we would have to know exactly what you are trying to get out of a life insurance policy and learn more about you. Either sit down with your insurance agent or give us a call! We’d be happy to find out what we can do for you!
Life Insurance Blog
At Life Insurance Blog, will never rush you through making a decision. We want to find out as much information as possible about you before making recommendations. Any broker who makes recommendations to you without understanding your goals, health, and need is doing you a great disservice. We can offer you a custom recommendation that’s in your best interest because there is no incentive on our part by choosing a specific insurance company over another. We have access to dozens of the best life insurance companies in order to provide our clients the best value and options available.
If you would like to learn more about us and how we can help you find the best life insurance for your needs, give us a call at 888-411-1329 for your free consultation!
Thank you for taking the time to read our article and please leave any questions and concerns you might have or leave us your feedback! Learn more about life insurance by visiting our Life Insurance 101 and Life Insurance Types pages.