At TermLife2Go, we are always asking the question, why? Why do so many so-called “experts” advocate only term life insurance? We don’t believe in one size fits all recommendations for policies or companies. That is why we focus so much on finding the best life insurance for our clients by aligning our clients with the most appropriate company based on each client’s unique need and lifestyle.
Ten Examples When Whole Life Is Better Than Term Life Insurance
In a prior article we examined the main difference between whole life vs term life. That article discussed the specifics types of life insurance available. In this article, we will address various examples when whole life insurance, also known as cash value life insurance, or ordinary life insurance, simply makes sense compared to term life.
For more reading on the benefits of whole life, please see our article Cash Value Life Insurance [13 Amazing Benefits]
Term vs. Whole life: When Whole Life Insurance Makes Sense
For the record, we at TermLife2Go believe that normally a Term Life Insurance policy is going to be the better choice for most individuals. Consider this life insurance rates by age chart to get an idea of how affordable term life can be.
However, there are reasons to consider a cash value whole life insurance policy, which is why we decided to write this article so that we could:
- First, point out why we feel that Level Term Life Insurance is usually the best choice for most, and
- Second, point out 10 SPECIFIC EXAMPLES where it may make more sense to choose a whole life option rather than a term policy.
Why Term Life Insurance is Considered the Better Option.
First, it is important to understand what term is and what term life is not.
In general, like most others who recommend term life insurance policies, we like them because:
Term Life is the most affordable option when it comes to getting life insurance.
Because you can find cheap term life insurance while you are young and just starting out in life compared to whole life insurance policies, term life will often be a better option for those looking to provide financial support to a loved one if he or she dies prematurely.
Additionally, who doesn’t love to save money? So if you only need life insurance to cover the cost of a mortgage, or protect young children, an affordable 20 or 30 year term life policy will probably be a perfect fit.
Our insurance needs change as we age.
Our insurance needs are generally thought to decrease as we age. Kids grow up, mortgages get paid, we reach retirement age and income replacement no longer plays a vital role in determining how much coverage we need. Which is why most financial advisors, (and financial entertainers such as Dave Ramsey and Suze Orman), recommend going with term life, the most affordable insurance option, which will provide ample coverage when your truly need it.
Buy term life and invest the difference.
Buy term life and invest the difference is the mantra created by the Primerica founder and not beaten to death by many financial advisors. Of the most notable, Dave Ramsey of Financial Peace fame and advocate of Zander Insurance, along with Suze Orman, the queen of finance, and advocate of SelecQuote Life Insurance.
Simply type in “Dave Ramsey Life Insurance” or “Suze Orman Life Insurance” for a plethora of results. However, the problem lies in the fact that such a dogmatic, myopic view of life insurance fails to tell the entire story. Therefore, it is vital we explore why they say this in order to get to the heart of the matter.
The theory put forth by these “gurus”, such as Dave Ramsey and Suze Orman, is this: families would be better off purchasing term, and investing the savings between the cost of term and whole life into some investment vehicle that would net a much better return than plunking it all down on cash value whole life. Now, this reason is a bit weak because in essence that idea could be applied to anything.
- “Don’t go out to the movies, wait for the DVD and invest the rest.”
- “Don’t go out for dinner, eat at home and invest the rest.”
- “Don’t buy gas, ride a bike and invest the rest”
The fact is most of us aren’t really disciplined enough to take the savings and invest it wisely over 20 or 30 years. But if you’re someone who can actually do that, more power to you!
And there you go, three solid reasons why Term Life Insurance is better than Whole Life Insurance for some people.
But wait, there’s more…
Whole Life Insurance vs Term: Is is whole life insurance a good investment?
In principal, we at TermLife2Go agree that, in most cases, a Term Life Insurance Policy is going to be a better option for most. In fact, it would be safe to say that nearly 90% of all insurance policies that we write at TermLife2Go are in fact “Term Life Insurance Policies.”
90% are Term, but that still leaves about 10% Whole Life.
And therein lies the problem. You see, there are some financial advisors, (remember Dave Ramsey and Suze Orman) and even some very large insurance brokerages, who only advise people to buy term life compared to cash value life insurance. For this reason, we have decided to describe some very real situations where whole life should at the very least be considered a viable option.
Commissions earned by a life insurance agent will be higher with a cash value whole life insurance policy than it will be with a term life insurance policy. Which is why, when it comes to deciding between whole life versus term life, you’ll want to ask yourself:
- Does this policy make sense for me, or am I being sold something that I don’t need?
- Am I going to need this much insurance until I’m 100 years old? (If not, you’re probably being sold something that you don’t need.)
Situations where a whole life insurance policy may make sense.
First, it is important to note that whole life insurance is not a good or bad “investment” because it all comes down to which company, policy and structure of whole life you choose.
Some whole life can be an awesome savings vehicle. Ever heard of the infinite banking concept? Do a Google search and you may be one of the people that thank us later. At the very least it does provide some yummy food for thought.
For a cash value life insurance policy to make sense, the client will have a valid need to have his or her life insurance coverage:
- Last their entire lifetime, or
- The cost difference between a whole life insurance policy and a term life insurance policy is so small that paying a bit more to have the coverage extend one’s whole life isn’t that big of a deal, or
- You understand the concepts of the bank on yourself, be your own bank, or infinite banking concept and want to use your policy as your own bank.
So that was a long intro. Good for you if you made it this far.
Let’s get on with it…
Top 10 Instances to Choose Whole Life Insurance over Term Life
- College Student;
- Young Parents w/ Kids;
- Limited Needs;
- Get Stuck Paying;
- Diagnosed Early;
- Family History;
- Special Needs;
- Estate Planning;
- Business Succession;
- Nothing Else!
We’ll often get calls from parents of children in college who are looking to get a small $100,000 to $250,000 life insurance policy on their child. Sometimes these policies are used to help ensure that student loans or other debts would be taken care of in case the unthinkable were to occur.
In cases like these where the price of a 20 or 30 year term life insurance policy is compared to the price of whole life, it often makes sense to purchase a cash value life insurance for children, which the parent can one day give to their child to take over payments.
529 Plan vs Whole Life
If you want to save for your kid’s college you might want to consider whole life vs 529 Plan. You can use the cash value in whole life for whatever you want and the cash value is not taken into account when your kid applies for a FAFSA student loan. The same cannot be said for a 529 Plan where you cannot freely use the money for whatever you want and the cash in the plan can hurt your kids chances of qualifying for federal student aid.
These are the cases where a grandparent will call in looking to get coverage on one of their children, typically for the Gerber Grow Up Plan. The grandparent is concerned about what would happen if their son or daughter passed away and they found themselves having to be the primary caretaker of their grandchildren.
And just like the example above, when looking at the price tag of a 20 or 30 year term life insurance policy, in some situations, the grandparent will simply elect to take the slightly more expensive cash value whole life insurance option rather than saving a few bucks and choosing a term life insurance policy for their grand kids.
Not everyone needs a huge life insurance policy. For some, just having enough life insurance to cover the cost of a burial is plenty. For these folks, the idea of paying for a much larger policy than they need, that will one day expire, simply doesn’t make any sense.
Now one could argue, why anyone would want to pay a monthly premium for just a small $3,000 to $25,000 life insurance policy? But after working in the life insurance industry for many years now and speaking with 1000s of individuals looking for a small amount of burial life insurance, we know that not everyone’s situation is the same.
What might be silly to one person may mean the difference between being able to grieve with dignity versus having to ask friends and neighbors to help bury their loved one.
For more information on burial and final expense insurance, check out our favorite final expense whole life insurance companies.
These are the calls that we get from a family member who is worried that if their father, mother, brother, sister or their crazy uncle dies, they’ll be stuck having to pay for the burial. For these folks, it makes perfect sense to purchase a small cash value whole life insurance policy on someone else just so they won’t get hit with a $10,000 or $15,000 bill from a funeral home!
There are a lot of people out there diagnosed with conditions, which if insured at a young age, can be covered. However, if that same person waits too long, or they end up purchasing a term life insurance policy that is set to expire too early, they may find themselves uninsurable.
For these folks diagnosed with a condition, like Type 1 diabetes or type 2 diabetes diagnosed at a young age, or some type of congenital heart defect, or one of a hundred other such pre-existing conditions, it may make more sense to lock into a whole life insurance policy when given the chance, rather than take the risk of never being able to qualify for ordinary life insurance again later on in life.
Another option is to lock into a term policy that has a conversion option. Convertible term life insurance allows you to convert all or a portion of the face amount to permanent life insurance, with no proof of insurability (i.e. no exam or health questions). The conversion option gives you the low price and flexibility of term life insurance with the protection of whole life insurance if the need arises.
We’re not suggesting that you run out and get a genetic test done, but it doesn’t take a genius to know that if nearly every living adult in your family seems to be taking cholesterol medications after the age of 40, you’ve got a pretty good chance of having to take them too!
And while having high cholesterol is nothing to laugh about, it certainly not as serious as many other hereditary diseases that are out there. For this reason, for those individuals who believe that they may have an increased genetic risk for a particular disease as they age, it may make sense for them to pursue a whole life insurance option before any conditions arise.
You might even want to consider no exam whole life insurance in case you have some latent health issue that is asymptomatic (i.e. no symptoms).
One of the biggest fears any parent of a special needs child has is, “who’s going to help care for my child after I’m gone.” For this reason, many parents of special needs children will be particularly interested in securing a cash value whole life option so that they never have to worry about outliving their insurance coverage.
A great permanent coverage option that is usually more affordable than coverage on both parents, is survivorship life insurance. This policy pays out when the surviving spouse dies. Parent of special needs children that have an existing special needs trust may benefit from this type of life insurance.
We have spoken with enough financial advisors and estate planning attorneys to know that in some cases, purchasing a whole life insurance policy can be a good idea for those with large estates that could potentially face significant tax repercussions when the proposed insured dies.
For example, using whole life insurance for leverage in estate planning is a great way to maximize your estate. And for those whose net worth is above the current federal estate tax exemption level of $5.45 million ($10.9 million combined), funding an irrevocable life insurance trust makes a ton of sense, and can save a ton of cents, too!
So… if your financial advisor has told you that you need to get a whole life insurance policy to protect your assets, guess what? We’re your guys!
A very pragmatic and intelligent approach to business succession is using life insurance for a buy-sell agreement. A Buy-Sell Agreement is a legally binding agreement between co-owners of a business that controls how the business will operate if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.
In cases like these that have the potential to become more complicated later on down the road, many times the “business” will elect to take out a permanent cash value life insurance policy, such as indexed universal life, on the individuals in question rather than try to make predictions on which term length would be most appropriate.
In similar fashion, key person business life insurance works well with whole or term life insurance. Different scenarios create different needs. There is no one size fits all product when considering key man coverage. Therefore, it is best to consider all your options.
Now that we’ve listed several reasons why someone may be interested in purchasing a whole life insurance policy, it only makes sense that we now talk about the #1 reason we’ll often recommend a cash value whole life insurance policy… which is, it’s all the client can qualify for.
For many clients, qualifying for a term life insurance policy isn’t an option due to their current medical conditions. For these clients who can’t qualify for a traditional term life insurance policy, a Gerber guaranteed life insurance policy that won’t require a medical exam or ask any health questions is a fantastic option to pursue.
And guess what, most of these guaranteed issue life insurance policies are ordinary whole life insurance policies!
So there you have it, our breakdown on the debate between Term Life Insurance vs. Whole Life Insurance, which is best for you?
Now, which type of policy is right for your situation?
Well, we really won’t know till we’ve had an opportunity to learn more about your specific situation and hear exactly what it is you’re trying to achieve by buying a life insurance policy.
So… What are you waiting for, give us a call today and see what we can do for you!
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