Insurance Information

Term vs. Whole

Life Insurance has changed very much over the last several decades. For the previous generation, Life Insurance was viewed as a policy that essentially would take care of the final expenses when a person passed away — burial costs, funeral services, small debts. Life was much different then and as we have now evolved into a society with large incomes, and a good deal of debt,it became necessary to find away to protect all of that.

Purchasing a Whole Life or Permanent policy for an amount large enough to replace a person’s salary and cover their debt became cost prohibitive and thus the creation of the Term Life policy. These policies are intended to cover a person for a specific number of years, or Term during the period of time when their death would cause the most financial hardship to the family.It’s meant to provide protection during those years where you are earning money, raising children,and paying down the mortgage and other debt.

The policies are very inexpensive relative to the amount of insurance mainy because the odds are overwhelming that you will outlive your policy. Think of it the same way you think of Auto Insurance— if you pay thousands of dollars over a 20-year period and never have a claim, you have essentially lost all that money, however, it’s necessary to insure the unlikely event that you have an accident and the potential to incur very large monetary loss due to property damage or bodily injury.

It is appropriate for most individuals to carry somewhere between 5 and10 times their annual income in life insurance. To obtain a Whole Life or Permanent policy for this amount would costs thousands if not tens of thousands of dollars depending on your income. It is this reality that resulted in the popular saying within the industry “Buy Term, Invest the Difference”.

When you compare the cost of Term Insurance vs. the exorbitant cost of a Whole Life policy, the decision for most people becomes very clear. Our advice is, and always has been to secure a inexpensive Term Policy to protect your family during your income earning years, and put away anything else you can manage into a real investment via your Retirement account or Mutual funds … you will be far better off in the end than funding an expensive cash value policy which normally turn out to be very poor investments as you can read about here (link to blog The Universal Truth about cash value policies)