Life Insurance: Term vs. Whole Life

Term vs. Whole Life?

This is a no brainer... TERM! Now, I can guarantee if you have ever asked an insurance agent with a company other than Primerica then you have probably be told the opposite. Why do I single out Primerica from my attack on whole life? Because, Primerica doesn't offer anything other than term!

Now for an explaination on my opinion. Term is cheaper for more coverage (much, much cheaper). Why is this, well term life will cover you for X years and pay out X amount. That being said, here's an example... if you buy a $300,000 policy for 35 years when you are 30 years old then, you (or your beneficiary to be more exact) will be paid $300,000 if you die before the age of 65. If you outlive the policy, then there is no cash value. That probably doesn't sound very good if you don't die. But, hey what is insurance for? It is an insurance if something unexpected happens.

And what about whole life? Or, other names could include Universal Life, Term to 100, etc.

Here is an example of a whole life policy: $100,000 coverage, small cash value (very small... say a few thousand saved within a decade or so) if you decide to withdraw it. How does this work? Well, when you die (at any age) your beneficiary receives $100,000. Now this may sound good on the surface... death benefit paid at any age, small cash value! But, you forgot to ask one question! How much is the premium? Well, the premium for these two examples would be drastically different! The whole life policy could cost upwards of 10 times as much as the term policy for 1/3 the coverage!

FAQ:

Q: So, if I buy term not whole life, then what happens if I outlive the policy?
A: Buy term and invest the rest. What does this mean? Buy term insurance and invest the difference between what you pay for term and what you would have paid for whole life. This strategy, if paired with your RRSP or 401K will ensure that by the time your 35 year term insurance expires you will have more than enough in your RRSP to ensure all postmortem obligations are covered. In essence... you will be self insured! That's a pretty good place to be!

Q: If term is so much better, why does my insurance agent suggest whole life?
A: His commission! I'll tell you right now, it isn't with your bet interest in mind. He stands to make 10 to 100 times the commission on a whole life sale as he would on a term life sale. Find a new agent! If you live in BC call me, if you need a referral outside BC I can recommend someone.

Cheers,
R

PS. Here's another opinion on this subject from someone you probably know... Suze Orman (Bestselling auther and TV personality). Take a quick look at this 3min video clip: