Which Is Better Term Life or Whole Life?

Question

Im under the impression that if you get Term Life, and lets say you die at 12:01 a.m., the day that you need to renew your policy, then your screwed because the term of the policy is already over. You see what Im saying?
Now with Whole Life, it seems like the best way to go because you can die at anytime and you'll be covered.
Please offer your imput, thanks.

Answer 1

In almost all cases term life is better than whole life. You can buy a higher policy value early on.

Remember that the ONLY reason to need life insurance when you are young is for your family to replace the income you would have made had you not died.

It should not be used as an investment tool.

Whole life has very high commissions for agents (which is why they push it so hard, even if it doesn' t seem right for you) and the investment return is usually not nearly as good as if you would have taken the savings between whole life and term (which will be substantial) and invested them yourself.

Of course if you invest the difference yourself, you'll likely be paying some taxes on the gain (in a life insurance policy, the proceeds of the policy are tax free to the beneficiary), but the difference is still so great that it is much better to save money and buy term, then be diligent about saving for college, paying off your house, socking some into retirement and building up a nest egg.

Big note.....as you grow older and you are due to renew your term, carefully notice if you really need as much as you used to have.

Twenty years after first buying the policy you may have already put the kids through school and maybe even paid off the house....if that's the case, when you go to renew, you don't need as much and can bring your premium down.

Answer 2

Any policy can lapse - even whole life - but, the insurance company is going to shower you with notices to make payment to keep that from happening.

As long as you make full premium payments on time, term policies will not lapse. All term plans have a "grace period" of at least 30 days beyond the stated due date of the premium. Even then, a company will give you another 5 days or so to get the premium in if you call them and ask for it.

As long as premium is not 60 days or more overdue and a person dies, the insurance company will probably pay the full face amount - minus the premium due - to the beneficiary. Why? Because if the insurance company denies the claim, there will be hell to pay in court, especially if the beneficiary was not the premium payor. (Judges and juries love to stick to insurance carriers.)

If you don't pay premium on a true whole life contract (not a universal-type of plan), and your contract does not include an "automatic premium loan" (APL) provision, the carrier has the contractual right to send you a check for the cash value and void the contract (that could trigger an income tax event, too). Typically, however, the contract does have an APL provision and the premium is taken from the cash value as a loan. So, if a person did die without making a premium payment and the policy was still in force by virtue of APL, the beneficiary would get the death benefit MINUS the loan and interest against the cash value.

Answer 3

Life insurance agents will say to buy whole life because they will get paid lots of commission for selling it. That's all they care about. But a financial expert will say to buy term and invest the difference.

This is how whole life insurance work:
1) You pay the same premium until age 98
2) No cash value is accumulated in first 2 years.
3) Rate of return on cash value is between 1-5%.
4) You may BORROW the cash value anytime, but you will also have to pay monthly interest on it as well. The amount you borrow is treated as a loan. This interest you pay does not go back to the cash value, but is kept by the insurance company.
5) If you die before age 98, your beneficiary will get the death benefit and the insurance company keeps the cash value.
6) If you live after age 98, the insurance company will payout the cash value to you and you will no longer have life insurance.

This is how term insurance work:
1) You pay a low amount of premium for a certain number of years (either 10, 15, 20, 25, or 30).
2) It does not contain cash value, which gives the reason why premiums are low.
3) When term expires, the policy will renew automatically, but the premiums will go up each time it renews. Usually, you will get a bill with a higher premium when the term expires. You have lots of options on what you want to do when term expires. 1) You may refuse to pay the premium (which means you don't want life insurance anymore). 2) You may reduce your death benefit to keep the premiums low. 3) Pay the new premium to keep the same death benefit. or 4) Convert it into a whole life policy.

I personally own a 20 year term with $150,000 coverage. I bought it last year at age 25 and pay currently $280/year for it. At the same time, I've been investing systematically. I started my own Roth IRA and put in $100/month into it. Every month, the investment company takes $100 out of my checking account and buys shares of the mutual funds I picked. I have 3 mutual funds in there and put $25 into two of them, and $50 into the other one. I can buy more shares on my own and stop the automatic bank draft anytime I want to.

Some people put in a one lump sum into it. There's nothing wrong with that, just that they don't know if they are investing when stock prices are high or when stock prices are low. When stock prices are high, you buy fewer shares. When prices are low, you buy more shares. This is called "Dollar Cost Averaging." The whole point of investing for the long term is to accumulate as many shares as possible.

If I die during the term, my beneficiary will get the death benefit and my investments. If I outlive the term, I need to decide on whether I still need life insurance or do I need as much coverage. I don't expect to have any financial obligations by the time the term expires. I do expect that my investments will grow if I continue invest systematically.

Anyway, whether you choose whole life or term is up to you. Both of them continues coverage until age 98. But buying term and investing the difference makes more sense than to keep your money in a life policy.

Answer 4

Term life is better for the client. Whole life is better for the insurance company.

Whole life works the same way - if you haven't paid the premium that year, the policy "expires" and you die, you don't get anything - because the "term" of whole life goes away when you stop paying.

The real difference between Term life and Whole life is how much you pay. For Term life, you pay about 10% of the cost, guaranteed, for the "term" of the policy - usually 10 - 20 years. Then if you renew it, you pay the higher rate.

Example: If you buy a 20 year term at 25, you pay $100 a year, for 20 years. Then when it expires, you're now 45, and that 20 year term policy will cost you $1800 a year, for 20 years. Then when you're 65, if you haven't kicked off yet, it will cost, well, I'm not sure, but A LOT.

For whole life, you can pay the same premium for your WHOLE LIFE. So, you buy it at 25, and pay . . . $2500 a year. $100 goes to buy a term life policy, $250 goes into "cash value", and the rest goes into the insurance company's pocket. When you're 45, it still costs you . . . $2500 a year. Same at 65.

BUT, if you do the math, you pay WAY WAY WAY WAY more for whole life insurance, and you get a teeny tiny cash value building up. You can do MUCH better by buying term, and sticking the difference in the cookie jar.

PS, the grace period for nonpayment on life insurance companies is the same for term and whole life - 30 days. And if you die within that 30 days, someone STILL has to pay the premium for the policy to reinstate.

Answer 5

97% of the term life policies ever purchased ever pay a death benefit. The owners wither outlive the term or drop the policy.

Term insurance is a GREAT deal IF (and IF is a mighty big word) you are disciplined to save enough during the insurance term (30 years if it is a 30 year term policy) to pay all of your bill through the rest of your life and you have no large unforeseen expenses like uninsured medical bills, a larger home or second home later in life, care for aging parents etc. It is also a good deal if you are guaranteed to die during the term.

Term has its place but perhaps it is best to own both term and permanent insurance - like floozy said below.

Go talk to one or more agents in your area.

If you listen to the other posters or agents who insist that term is the "only way to go" then have them assure you that you won't leave behind any large unpaid bills at your death, most notably medical bills or nursing home bills. If there is a pension in your future, investigate what the payouts will be for your life only versus the payout for both you and your spouse. Then look at the cost of insurance to make up the difference in the two pension payouts.

Term works very well if you are assured of having enough money from some source (your own savings) to cover all of your late life expenses. As an agent that works with seniors on these issues, it is rare that I find someone past 65 that has adequate savings.

Answer 6

That is the truth. If your term expires your contract is moot. There are benefits of both, however if you buy whole life too soon you're paying for it. The way the premiums are calculated are generally an assumption your dying and them paying the contract and then some percentage as profit. If you buy whole life younger you'll be paying (however slightly) for the risk of dying 30-50 years down the line in the present, however if you buy term you'll be maintaining current and more shorter term risk. The bad part about this balance is to get into the whole life soon enough that premiums are not too high and thus make the policy unattractive.

Or this is at least my opinion.

Answer 7

that's not really the difference between term and whole life. term life is a policy where you pay for insurance and if you stop paying it has no cash value. whole life is like a combination between term life and a savings plan. whole life policies can accumulate cash value that you can draw on and borrow against in the future. whole life policies are almost always considered a bad investment that give a poor rate of return relative to other places you could save the money (stocks, bonds, real estate, cds, etc).

as for dying at 1201am, every insurance company i know of has some kind of grace period for keeping your policy paid up, and whole and term life probably aren't treated any differently.

Answer 8

Both whole life and term life have their benefits. A term life product is inexpensive and only lasts for a "term" so basically it is usually sold to cover a mortgage term or other credit related expenses. Term insurance also has a shelf life and when it expires you are usually 10-30 years older depending on the term you chose. Say you buy a term policy when you are 25 and the policy is a level term 20year product, it will expire when you are 45 and then at age 43 you are diagnosed with cancer but you won't die for about 5 years...you will outlive your policy!!! Whole life is designed to never expire and basically insure your insurability. Once you buy a whole life product it is yours for as long as you keep paying for it. Heaven forbid that you develop a dibilitating disease that WON'T kill you and you outlive your term policy. My husband was diagnosed with parkinsons disease at age 42 and we purchased 20yr term insurance 8 years prior to that. He will outlive his insurance policy because no insurance company will insure him now.
Find a trustworthy insurance company and make sure you do your research prior to taking out a whole life product because there are agents out there that will sell you a crappy whole life product to benefit their company.

Answer 9

Term Life is a better.

Whole life costs about 8-10 times more. The extra money goes into basically a savings account. It grows at a very poor rate of return,(3-7%) depending on which type you use. All of the money for the first three years goes towards maintenance and fees.

And most importantly, the cash value that builds up at a poor rate of return...after all those years of paying into it, when you finally die...the money in the account goes to the insurance company! Not your beneficiary.

It's best to get 20-30 year level term insurance of about 10 times your income. Get out of debt and save for retirement. That way when you do get old and your policy expires, you won't need life insurance anymore.

Answer 10

They have two different purposes really.

Term is meant to get your family through a period in life without you. For example kids education or paying off the house.

Whole life is meant to be a low interst savings account that has an added benefit of a large payoff if you die.

Some more info at these links including rate quotes. Good luck!