Which is umm liek totally better to have, whole life insurance or term insurance ?

Answer 1

There are currently two types of life insurance out there available to the public. One is known as "cash value" life insurance and the other is known as "term insurance."

What is cash value life insurance? It is the type of policy that contains a savings vehicle in it. Cash value comes in many forms, such as whole life, universal life, variable life, or a mixture of those words together such as variable universal life or universal whole life, etc. The advantages of having cash value life insurance is that you are protected until age 100, you can use the cash value anytime for any use such as paying your premiums, and interest on your cash value is tax-deferred.

The disadvantages of having cash value life insurance is that you are paying lots of premiums for low amount of coverage, no cash value is accumulated during first two years of the policy, rate of return is very low, and if you use any of the cash value, you must pay it back with interest. This interest does not go back into the cash value, but rather kept by the insurance company because the money you taken out of the cash value is treated as a loan. In many policies, if you were to die, your beneficiary will receive the face amount and all cash value will be kept by the insurance company. Keep in mind, if you use any of the cash value and you did not pay it back, this amount will be deducted from face amount upon your death.

You are probably asking, why would anyone buy this kind of life insurance? First reason is that many people do not understand how this policy works. Second reason is that people don't buy life insurance, they are sold on it. The agent who sells cash value life insurance does not care about you or your family. All he/she cares about is how much commissions he/she is getting paid and they going to use whatever deceptive sales tactic to make you buy it. For example, the agent may say that in some time in the future, your life insurance is paid up and that you don't have to pay the premiums anymore. That is absolutely false. If you do not pay your premiums, the insurance company will use your cash value to pay it. When the cash value hits zero, you will get a letter saying that you are in danger of losing your life insurance and that you must pay back all cash value and all missed premiums. If you don't, you will lose coverage and will pay income taxes on the loan amount.

So, what is term insurance? It is the type of insurance that provides a level death benefit for life. Just like car insurance, if you don't pay your premiums, you will lose coverage. Advantages of having term insurance are: premiums are very low during the term, you have more flexibility to invest your money in a savings vehicle (hence the phrase, "buy term and invest the difference"), and if you were to die during the term, your beneficiary will get the face amount and all your investments.

The disadvantage of term that while premium remain fix for certain amount of period (10, 15, 20, 25, 30, or 35 years), the premium will go up when it is time to renew. You may pay the annual renewal premium, which goes up every year or so after the initial term, or get another term policy. Term never expires until you stop paying for it or when you become 90 something years old. However, some companies only have annual renewable term until age 70 or 75. In either case, you probably won't need life insurance by that time because no one is dependent on your income or you don't have any income at all because you are living off your investments or savings, social security (which won't be much), and probably pension plans (if they still exist when you retire).

Why would people buy term insurance? First, premiums are very low and remain fix during the term. In the early stages of your adult life, you probably have lots of debt to pay off such as your mortgage, you probably have kids to support, and you probably don't have much money saved for retirement. So you need lots of insurance coverage to protect the family. As you get older, your kids are all grown up, your mortgage is or almost paid off, and you better have lots of money saved for retirement. As you get older, you probably won't need life insurance or need as much coverage as you did 20 to 30 years ago. Why life insurance agents rarely sell this is because of the low premiums. Some agents that sell term insurance will come back to you a year or two and have you convert it to whole life. There's good chance you will do it because the agent or whoever is trying to sell it will make cash value life insurance look very good to you.

What happens when the level term expires? When the level term expires, you enter the phase of the contract called "Annual Renewable Term." That means you have the right to renew the term without having to provide proof of insurability. The premiums will go up every year or so (check the policy on how often the premiums goes up after the level term). There are many things you can do when the level term expires. (1) You may convert it to a permanent whole life policy (which I don't recommend). (2) You may purchase another level term (I recommend that you significantly lower your coverage amount to a minimum of $20,000). You may need to provide proof of insurability. (3) You may refuse to pay the premiums to cancel the policy (if you do this, I highly recommend that you allocate the money toward your retirement).

If you have cash value life insurance right now and are probably pissed off about having it, you should replace it with term insurance. When you get your term policy, there's a couple things you can do with your cash value. First thing you can do is that you can surrender it. You may have to pay surrender charges on it and you will owe taxes on it. The second thing you can do (and is probably the best way to do it) is do a 1035 exchange, which moves the cash value into an annuity product or another cash value life insurance without any tax implications.

Other facts:
What is a dividend in an insurance policy? It means that you are over paying your premiums and the life insurance is returning (or refunding) it as a dividend. Keep in mind, this is not the same as receiving dividends on mutual funds. Dividends in mutual funds are only paid out if profits are recognized that year, so shareholders will get a share of that dividend.

Getting separate insurance policies will cost you lots of money in the long run. Each policy cost about $100 to maintain each year. If you have multiple policies on yourself, you should immediately change your life insurance agent and probably the company as well. There is no reason why you should have more than one policy on yourself. It is best to add "riders" to the policy such as spouse rider and child rider. That way the whole family is protected under one policy.

Some of you seen the word, "unit" on TV commercials. A unit represents one-$1000 worth of coverage. I seen commercials for retire people where one unit cost $8.75/month. In your mind, you are thinking thats very cheap. If you do the math, you will find out that's very expensive! If you wanted $100,000 coverage, thats 100 units. 100 time 8.75 = $875.00/month you need to pay for life insurance. I have a 20 year term of $150,000 coverage when I was 23 years old and I pay less than $300/year for it.

Answer 2

Term insurance is basically you making a bet with a company that you will die within a certain time period. The company is making the bet that you won't die. Term is far cheaper than whole life because it is what it is, there's nothing more to it. You have your coverage ammount and as long as you pay your premiums (which will be the same everytime a bill gets sent to you) and thats it.

The permanant polices (which include whole life, universal life, etc) are usually more expensive because they build cash value over time and as long as you fund the policy. You can also "borrow" the cash back out of the policy once you have built up enough cash value to do so. These policies are usually way more expensive than Term policies.

Answer 3

Term plans are there to protect your family from the financial loss due to the loss of your life. You can take it for the no of years you see yourself working. It is cheaper and unlike other insurances its premium increases with the increasing term.

I've been into insurance for the last decade and advice that to my clients alongwith the unit linked plans.

Whole life insurance is the plan in which you keep investing for decades and what you get is a combination of term and profits. In whole life, your premia tend to be higher as term of coverage is more and also the investment part for profits is also there.

Now, the choice is yours.

Answer 4

There is no "one size fits all" approach.

When I was younger and had a mortgage and daughter in school, term was the way to go. You had protection, and plenty of it, for an affordable premium.

Now, my needs are less,term would be too steep, so I rely on whole life policies I've had for a while. Basically, all I need now is burial ins.

Answer 5

whole life is better. But you may browse here to see both plans.
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