Whole vs. Term Life


Whole life policies are very expensive compared to a term policy. This illustration shows the price difference between term and whole life policies.

$500,000 quote pulled 5/7/2021, for a 26 year old woman, non-smoker

If we take the example from above, the term life insurance policy will have cost $5,769.60 after 20 years. The whole life policy will have cost $70,629.60 in 20 years.

If you take the term life policy and invest the difference every year, earn even a conservative 4% a year in the stock market, you’d have accumulated over $100,000.

And sure, the whole life policy may have an accumulated cash value, however, you’ll receive dividends on a tiny portion of the premiums you pay; most of what you pay goes to the insurance company in fees. The structures of these products isn’t transparent and it’s hard to figure out what your cash value could be in future years. I can guarantee it wouldn’t be anywhere near as much as if you just invest the difference. And getting at the cash value… well that can be tricky as it would have to be a policy loan and if it’s not repaid can become taxable or reduce the death benefit.

Whole life policies are expensive because they’re “guaranteed” and complex. By comparison, term policies are simple and cheap.

The likelihood that you’ll meet an untimely death is unlikely. You’re very much likely to live to a ripe old age, so you’re better off with a term policy. Even if you did pass in this 20 year period, you’d have been better off with the term policy because you would have spent just over $5,700 but accumulated over $100k in the meantime and you’d receive the death benefit.

The point of this illustration is this; insurance shouldn’t be used as an investment. Whole life policies are incredibly expensive. Instead of paying high premiums to an insurance policy, get a term policy and invest the difference. You and your heirs will be glad you did.

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