(Closed) Life Insurance – Term vs Whole Life

posted 3 years ago in Finances
  • poll: Life Insurance - what do you have?
    We have term life : (26 votes)
    53 %
    We have Whole life : (8 votes)
    16 %
    We don't have insurance but I'd get Term Life : (7 votes)
    14 %
    We don't have insurance but I'd get Whole Life : (6 votes)
    12 %
    We just got mortgage insurance and we don't have life insurance : (0 votes)
    we have mortgage and life insurance : (2 votes)
    4 %
    I have another answer : (0 votes)
  • Post # 2
    Member
    1848 posts
    Buzzing bee
    • Wedding: July 2016

    I have a term policy but would prefer whole life.  It was a cost decision.  They said I could switch during the term, so I plan to do that.  

    I just prefer that the money I’m paying actually builds up over time.  

    Post # 4
    Member
    8629 posts
    Bumble Beekeeper

    MsGinkgo :  we are shopping for term now. I don’t see it as a waste – I hope it never does pay out! Because if it does I’ve died too young. I have home, car, health, and pet insurance but I also hope to use those as little as possible too. 

    Post # 6
    Member
    1374 posts
    Bumble bee
    • Wedding: August 2012

    MsGinkgo :  You’re confusing investments and insurance. The idea with term life insurance is that it’s so dirt cheap, you put all the money you’re saving (from not paying for whole life) into actual investments (insurance is not an investment vehicle), and by the time your term expires you’ve built actual wealth through solid investments and are then self insured.

    The notion that whole life is building up a savings is flawed. I’d rather keep my money. When you run the numbers, whole life never makes sense — might as well throw your money away.

    You don’t buy insurance for a potential pay out, you buy it to protect your dependants if your net worth is not high enough to support them. Or, in some cases, you buy it as a little luxury for peace of mind: my husband and I have no mortgage or dependants but we have life insurance because we don’t want the surviving spouse to worry about working while he/she is grieving. It’s substantial insurance and the monthly cost is less than I spend at Starbucks in a week.

    Post # 7
    Member
    1035 posts
    Bumble bee
    • Wedding: March 2015

    I see zero point in whole life insurance.

    The point of insurance is to minimize risk by spreading it out; everyone pays a bit so that the one person who dies young has their family covered.

    If you want to invest money for the long term and keep any gains for yourself, there’s a whole host of other investment products out there that do the job in a more straightforward way with lower fees. Just buy an index fund and call it a day.

    Merging your investments with your insurance just gives you less control over your finances and opens you up to more hidden fees.

    Post # 8
    Member
    2053 posts
    Buzzing bee
    • Wedding: May 2013

    We have term life.  We don’t view insurance as an investment, but as a safety policy.  Just like health insurance and car insurance.  If you take the price difference between term and whole life and invest it every year yourself, you will more than likely be ahead with the term policy.

    Post # 9
    Member
    8 posts
    Newbee

    You should look at getting a term policy 15-20 years at 10x your current income. Whole life policies usually have awful returns (2-4% if you’re lucky). They are NOT an investment when the market will return 7-12% over that same time horizon. If you’re concerned about investing, invest the premium difference from your whole policy quotes into retirement or investment accounts (growth-stock mutual funds). I would also recommend giving Dave Ramsey’s podcast or ‘Total Money Makeover’ a look since you’re looking at multiple big financial moves. 

    Post # 11
    Member
    14492 posts
    Honey Beekeeper
    • Wedding: June 2011

    Go with whole life. You’re young and healthy, you’re locking in a price for life. I’ve had my whole life since I was 20ish, I payed 50 a month for 200k, that was 25 years ago. It is now paying for itself off of the dividends plus I have a cash value building up that will either add to the payout or I can withdraw that at anytime should I need. My insurance is through a mutual company that pays the dividends straight back to the policy holders and not to stockholders, which makes a huge difference. 

    Hubs has a term life, whole life at his age and health was just too expensive. As the length of term goes up, so does the price. He has a ten year term, when that term is up, we’ll have to reup at a higher price also. 

    This isn’t an investment, but like I said above is you are locking in a price for life with whole life. It’s easy to say “well invest the difference” but that very rarely actually happens and investing isn’t a guarantee unless you go super conservative with low risk but then there’s a much smaller profit possibility. You’re also looking long term, at 60,65,70, even if well settled and well invested, life insurance is still important but getting and paying for term at those ages is very high. With whole life, it will be paying for itself so it will be no out of pocket costs. To me, whole life vs term is the difference between owning and renting. 

    Post # 12
    Member
    1035 posts
    Bumble bee
    • Wedding: March 2015

    tksjewelry :  Why do you think life insurance is still important later in life? Once you’ve had time to build up real assets, you shouldn’t need the insurance policy anymore.

    Also, long-term stock market gains are actually quite reliable. You could have invested on the brink of the Great Depression and still seen average annual returns of almost 8% over the next 30 years. (Source: http://awealthofcommonsense.com/2016/05/deconstructing-30-year-stock-market-returns/)

    Post # 13
    Member
    14492 posts
    Honey Beekeeper
    • Wedding: June 2011

    BookishBee :  dying and getting old is expensive. I’ve worked in and around life insurance all my life and have seen what a prolonged illness can do to even wealthy people’s finances. Nursing homes can cost 10k a month or more in some areas and to be properly insured for all the variances can cost a fortune. Plus, life insurance isn’t taxable. So you’re leaving your spouse or children a guaranteed readily available cash flow to handle things like burial expenses, time off work, probate and other expenses. Transferring wealth takes time and money even to a spouse.  If transferring wealth to a child, that’s taxable for the most part as laws stand now. 

    Less than 3% of the US population optimizes investments, and very few investments are guaranteed. If a spouse or child gets 200k or more tax free, that almost equals any gains that money that could have been invested would have made in the market considering estate tax in some areas can reach 50% or more. 

    Post # 15
    Member
    2053 posts
    Buzzing bee
    • Wedding: May 2013

    tksjewelry :  life insurance payouts are most certainly taxable – especially when it relates to estate taxes which can be huge depending on the state.  Just FYI.

    The topic ‘Life Insurance – Term vs Whole Life’ is closed to new replies.

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