If you read or follow most personal finance people (Ramsey, Orman, blogs), they will all sell you on the idea of Term Life Insurance. The baseline logic makes fiscal sense - the monthly premiums are lower and the coverage amount is greater. Easy financial decision.
WAIT!!
Let's play Devil's Advocate. I currently own a Whole Life Insurance Policy. I am in my late (still hate saying that) 20s, never used tobacco, and my family has no history of genetic health problems. I own a $150k policy for about $2.1k a year, or $176 a month. I did some research and found that on average, a $1.5 MM Term Life Policy would only cost me ~$60 a month!
I could be saving $116 a month!! I am so Stupid!!! Oh wait....
Let's play a little hypothetical game and move to July 2032! I've been making premiums payments for 20 years at this point.
Whole Life Insurance - After 20 years, I will have paid $42,244.80 in premiums. Wow. However, the Cash Value of the policy should be $32,079 (this isn't definitive based upon the markets, but a decent approximation based upon history of agency). So, after 20 years, the Net Value is $(10,165).
Term Life Insurance - After 20 years, I would have paid $14,400 in premiums. A difference of $27,844 compared to Whole Life. Unfortunately, I've managed to live the entire 20 years (HA! Just as I planned!), so the payouts were never received. So, the net value of the Term Policy is $(14,400)! Wait - that's worse than the Whole Life!! I thought Term Life was great - what gives!!
In addition, the Whole Life policy premiums remain steady at $176/month even as I approach the age of 50! Which is great!
Under the Term Life Policy - since I've got kids/marriages/and retirement to think about, I'm going to renew my Term Life Policy. However, now I'm 48, not 28. So, I reduce my need in half to $750k. That brings my monthly premium to $115!! WHAT??? Oh man.
So, let's recap. If you are young and can manage some extra payments now - a Whole Life Policy is a MUCH better LONG TERM decision. The money output is better in the end and the flexibility is greater with the availability to cash out. Neither is a fool-proof investment tool and should not be treated as such. It's insurance - the company that offers it needs to make money. However, when looking for flexibility and long-term gains, I'm sticking with my Whole Life Policy.
WAIT!!
Let's play Devil's Advocate. I currently own a Whole Life Insurance Policy. I am in my late (still hate saying that) 20s, never used tobacco, and my family has no history of genetic health problems. I own a $150k policy for about $2.1k a year, or $176 a month. I did some research and found that on average, a $1.5 MM Term Life Policy would only cost me ~$60 a month!
I could be saving $116 a month!! I am so Stupid!!! Oh wait....
Let's play a little hypothetical game and move to July 2032! I've been making premiums payments for 20 years at this point.
Whole Life Insurance - After 20 years, I will have paid $42,244.80 in premiums. Wow. However, the Cash Value of the policy should be $32,079 (this isn't definitive based upon the markets, but a decent approximation based upon history of agency). So, after 20 years, the Net Value is $(10,165).
Term Life Insurance - After 20 years, I would have paid $14,400 in premiums. A difference of $27,844 compared to Whole Life. Unfortunately, I've managed to live the entire 20 years (HA! Just as I planned!), so the payouts were never received. So, the net value of the Term Policy is $(14,400)! Wait - that's worse than the Whole Life!! I thought Term Life was great - what gives!!
In addition, the Whole Life policy premiums remain steady at $176/month even as I approach the age of 50! Which is great!
Under the Term Life Policy - since I've got kids/marriages/and retirement to think about, I'm going to renew my Term Life Policy. However, now I'm 48, not 28. So, I reduce my need in half to $750k. That brings my monthly premium to $115!! WHAT??? Oh man.
So, let's recap. If you are young and can manage some extra payments now - a Whole Life Policy is a MUCH better LONG TERM decision. The money output is better in the end and the flexibility is greater with the availability to cash out. Neither is a fool-proof investment tool and should not be treated as such. It's insurance - the company that offers it needs to make money. However, when looking for flexibility and long-term gains, I'm sticking with my Whole Life Policy.
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