Term Verses Whole Life – When it Comes to Life Insurance it Pays



Posted: Thursday, February 16, 2006

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There has been an age old battle between the virtues of term life insurance verses whole life insurance. The proponents of term life insurance often lead with the argument that it would be better to buy term insurance and invest the difference. The whole life advocates attack the temporary nature of term insurance and are skeptical about people investing properly to achieve what the whole life product does on its own. The insurance industry has come up with several variations of life insurance to appease these two opposing schools of thought. The Universal life policy was created in the 1980’s. It is a flexible premium policy that gives the insured the option of changing premiums and adjusting the performance as well as the policy period. Variable Life policies have investment features called sub-accounts. These products were developed to counter the term verses whole life dilemma. The complexity of the new plan kind of stymied the average consumer. Life Insurance professional have a much greater role in sorting things out for the permanent insurance shopper.

The term verses whole life battle has kind of resulted in the marriage of several concepts. The best way to approach this is by taking a more simplistic approach. Term insurance is for temporary needs. Whole life insurance is for permanent lifetime needs. It seems to me that we need both types in our insurance portfolios. A permanent base of whole life, universal life or variable life with additional term policies or riders seems to be the balanced approach. If you are opposed to permanent forms of life insurance, you need to have a defined strategic investment plan to provide for you during your retirement years. The average consumer does not have the time to become knowledgeable in making investments. Choose an insurance company and or professional that can translate your financial goals into a meaningful insurance and investment portfolio. That will probably include both whole life and term life insurance.

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Top-level comments on this article: (1 total)
» left by Anonymous 4 years 248 days ago.
You need to have a defined strategic investment plan no matter what type of life insurance you buy. Life insurance should never be considered "retirement savings". Here is one reason, if you withdraw all of the savings out of your insurance policy, and it lapses, you now owe taxes on every penny you pulled out above what you put in. People, you don't have to be a financial genius to make good choices when it comes to your finances. Yes you do need a professional sometimes, but be careful, know what you are buying. By the way, "buy term & invest the difference" is exactly what a whole life policy is, except the insurance company keeps the profits. The insurance company buys an annual renewable term policy every year, and invests the rest. Then they pay you a small fraction of the return they get on it.
» left by Anonymous 3 years 277 days ago.
Well , the average interest paid to the owner of a whole life policy is around 4% tax deferred earnings. There is a guaranteed minimum. The cash value buildup is not subject to being lost as in stock or mutual funds. Compare that to Cd's paying around 2% which is taxable. Then that whole life policy looks like a pretty good choice!
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