Term Life Insurance Versus Whole Life Insurance

Life insurance is a vital tool in the planning of one's financial affairs, and is a must have for anyone with a family, or a loved one dependent on one's source of income. Life insurance falls into two basic categories: Term-life, and whole-life. Term life involves paying a premium, fixed for a period often from 1-20 years, with collection only upon one's death. Whole life insurance involves having a premium fixed for one's entire life. The premium you pay today will be the same premium you pay 30 years from now, and the policy builds some cash value which you can cash in or borrow against at a later date.

In my experiences of evaluating and searching for insurance for myself and my wife, I have found that whole-life insurance is very overpriced and is only appropriate in a limited set of circumstances. If one is living a risky lifestyle, such as through a job that has a high risk of injury or death, or is engaging in unsafe activity (i.e. contracts AIDS or some other incurable disease), they may find themselves uninsurable. This is exactly why whole life premiums are often 200-300% those of term life; the insurers are not idiots, and have to make their money somewhere, so they compensate for this higher risk by charging much higher premiums. Furthermore, the "cash value" settlements, often tied to an investment product to sound better, offer returns so dismal it would be foolish to put money into them purely for the return.

Term life insurance allows one to buy the same amount of coverage at a discount of 60-70% of whole life policies. Granted, one may not get a cash surrender benefit, but they could easily take the savings in premiums and put that money into far better returns offered in the stock market. If one is in good health, and refrains from smoking or other risky behaviors, they could easily get a good, long-term policy for very low rates. Zander.com is one site I use to evaluate term life policies, and tends to keep it straight and to the point as to what the policy is and costs. If one had premiums of say, $100 a month for whole life, and $33 a month for term life, and invested the $67 a month difference in a mutual fund averaging 10% returns over 20 years, they could earn $50,877! What a great deal! I can assuredly guarantee you that your whole life policy will definitely not be this generous.