Whole vs Term Life Insurance
- Thread starter Eppy99
- Start date
Everything I've learned about personal finance tells me that whole life is a bad, bad investment. Best to buy term at the best price you can get and invest the other available money in your portfolio.
While I'm not a full fledged disciple, I like Dave Ramsey's approach to managing money. Here's his take on the question:
https://www.daveramsey.com/blog/term-life-vs-whole-life-insurance
Of course, this comes from poor white trash living in a trailer park. But I'm debt free and will be able to retire comfortably above the poverty line when the time comes, so there's that. The principles are the same, the size of our respective numbers notwithstanding.
Everything I’ve ever read previously basically said the same take the term and invest wisely. My father in law who has done well financially is telling my wife go with whole life because the investments will eventually pay the premiums. Maybe but I’m not sure you still can’t do better with a well managed portfolio.
There is no free lunch. F-I-L may have done well, but he's been duped if he thinks whole life will "pay for itself" -- and even if it does, it's paying for itself at a much higher cost than what you can buy term for with lots of money left over to invest more profitably.
Also note Dave's take on the need for insurance at all. If you're out of debt and have a bunch of money socked away, then life insurance shouldn't be needed.
I'm pretty sure there is a fund analogous to FDIC (state level) to take care of that unlikely situation.
You would be right:
What is State Guaranty Fund
A state guaranty fund is administered by a U.S. state to protect policyholders in the event that an insurance company defaults on benefit payments or becomes insolvent. The fund only protects beneficiaries of insurance companies that are licensed to sell insurance products in that state.
BREAKING DOWN State Guaranty Fund
State guaranty funds exist in all 50 states, Puerto Rico and Washington D.C. Most states maintain separate funds for property/casualty insurance and life/health insurance. These state guaranty funds act as a form of insurance for insurance, and are funded by insurance companies that sell insurance in a given state. The amount of funding an insurance company is required to pay is a percentage, ranging from 1 to 2 percent of the net amount of insurance it sells within any particular state.
A state guaranty fund is administered by a U.S. state to protect policyholders in the event that an insurance company defaults on benefit payments or becomes insolvent. The fund only protects beneficiaries of insurance companies that are licensed to sell insurance products in that state.
BREAKING DOWN State Guaranty Fund
State guaranty funds exist in all 50 states, Puerto Rico and Washington D.C. Most states maintain separate funds for property/casualty insurance and life/health insurance. These state guaranty funds act as a form of insurance for insurance, and are funded by insurance companies that sell insurance in a given state. The amount of funding an insurance company is required to pay is a percentage, ranging from 1 to 2 percent of the net amount of insurance it sells within any particular state.
If u want some growth in the policy and options long term go with an indexed UL of some type. If u want larger amounts of death benefit for specifuc purposes for a defined period of time while other assets grow and debts are paid down gor for a 30 year term.
It takes more discipline to buy term and invest the difference in equities. The difference being the savings in premium between a whole life policy and term. The discipline being the temptation not to invest the difference.
Term insurance can be declining or flat with declining costing less. Therorectically declining is preferable as it allows for the difference going into equities to be higher.
Term insurance can be declining or flat with declining costing less. Therorectically declining is preferable as it allows for the difference going into equities to be higher.
This is easy. Buy 20 year term policies when you’re young and have no savings (and it’s cheap) and max your 401k’s, and invest in index funds with whatever you have left. After 20 years you won’t need life insurance. Whole life is what your grandparents bought in the 50’s when they had few choices.
This what the wife and I do. Both in our 30s. We put our $37k in our 401ks each year and another $15k or so into Vanguard funds. I like Vanguards Total Stock Market Index fund. This whole investing and living within your means thing really isn't rocket science.
Best advice I heard a Bloomington prof claim in one of my first finance classes. Name of the prof is escaping me.
Don't use insurance to save/invest. Buy insurance for you know....insurance.
Unless you make upwards of seven figures, there is no valid reason for people to be buying any form of permanent life insurance. The only people that won't tell you that are insurance sales people and people that have been duped by insurance sales people.
Unless you make upwards of seven figures, there is no valid reason for people to be buying any form of permanent life insurance. The only people that won't tell you that are insurance sales people and people that have been duped by insurance sales people.
What hoot said earlier. It comes down to whether you have the discipline to invest the difference between WL policy and a term policy. As others have said, use insurance for insurance and invest for retirement.
I will say I did buy small $50K WL policies for my children when they were young (i.e. less than 10). Annual premium is right around $300. I wanted them to have a permanent policy in the unlikely event that they developed a condition while young that would render them uninsurable in the future. After the age of 25, I gave the policies to them. Their choice from that point on whether to keep them or not. Kind of glad that I had purchased them, not because I ever needed them (thank goodness), but I have seen situations with friends where their loved ones can't get Life Insurance for one reason or another.
For my own personal situation, I utilize 10 year term little cheaper than 20 year, but I'm also about 10 years older than Eppy, so the 20 year probably makes sense
I will say I did buy small $50K WL policies for my children when they were young (i.e. less than 10). Annual premium is right around $300. I wanted them to have a permanent policy in the unlikely event that they developed a condition while young that would render them uninsurable in the future. After the age of 25, I gave the policies to them. Their choice from that point on whether to keep them or not. Kind of glad that I had purchased them, not because I ever needed them (thank goodness), but I have seen situations with friends where their loved ones can't get Life Insurance for one reason or another.
For my own personal situation, I utilize 10 year term little cheaper than 20 year, but I'm also about 10 years older than Eppy, so the 20 year probably makes sense
Generally agree with what others have said, usually better to go with Term and invest the difference. That said, there are some advantages to Whole Life policies that you should consider whether they may apply to you. This is a good explanation of the pros vs cons:
Investopedia article
Investopedia article
I bought a WL policy right out of school and still have it. It looks pretty on paper right now with cash value and paid in benefits until you look at what I paid for it over the years.
Get term for as long as you can get the level Prems. If it is close to being up for renewal do so before any major medical testing in case something turns up.
Get term for as long as you can get the level Prems. If it is close to being up for renewal do so before any major medical testing in case something turns up.
don’t rely on the guarantee fund. They only pay pennies on the dollar and it takes a long time. There is a reason Insurance companies cannot advertise that the fund exists.
Whole life policies actually have a declining death benefit once you factor in the increase in cash values.
On the other hand, you can use cash value policies to defer income tax if you are motivated by that. But a Roth would be better. On the other other hand, cash values don't decrease like a Roth might.
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