Should I purchase Term Insurance not Whole Life and invest the difference?
Answer:
It depends upon a variety of factors. Do you expect to need life insurance in your retirement years after your home is paid for and kids are moved out? Are you afraid of potentially becoming uninsurable in the future? Or do you expect to be very wealthy, and after contributing the maximum amount in your 401k and IRA, you need other tax-advantage vehicles such as Cash-value life insurance to stash your money. If you answered yes to any of these questions, then you might consider a whole life policy, universal or variable universal policy.
If you answered no to these three questions, then buying term life insurance and investing the difference will be cheaper and help you accumulate money faster. There are extra costs involved of whole life and universal policies. These costs add up and the difference in premiums can be substantial.
Term Life insurance is pure insurance, no fancy bells or whistles. The difference in premiums for the same amount of insurance could be 75% less for term. That is a huge, and investing the difference could be significant, eventually outpacing the actual value of the policy.
Personally, I have term.
Get with a financial planner.There are other option these days besides whole life.Term is ok when you are young,but as you get older it can go up,and at the end you have nothing.
Couple of things to consider. What is the interest rate on the whole life, for one. If you can do better in a mutual fund, and if you REALLY WILL invest the difference, then sure. Other consideration is, term ends at the end of the term. Will you still be insurable (re-insurable) when that happens? What if you've come up with cancer by then, or something. So, each one has merits. Term is best if you truly only need it for a specific term, like till your kids are out of college or something, in my opinion.
Excellent choice. The money that you invest is yours. You can take it out and do whatever you want with it. You decide what to invest in. Giving it to the insurance company you have no say in what they invest it in. You can not get that money back. They will let you borrow against it and pay it back with interest. The insurance companies hate it when you invest it yourself; they lose money. Your rate of return is better when you invest yourself.
No it is not a good idea. Read the fine print. You invest in term life and then when you need life insurance the most it is canceled
because it is insurance for a limited time. Then you are usually too old to get any other life insurance. Whole life insurance is
an investment. You are banking money for the rest of your life and
will have something to leave loved ones. When Term insurance
ends you won't get your money back. Term Life insurance is cheaper because it is usually a rip off in the long run.
Whole Life insurance = horrible idea! Don't take my word for it, go to http://www.daveramsey.com/the_truth_abou.
whole life is a terrible option as an investment vehicle. with the myrid of investment option you can do much better that insurance.
Using Whole Life as an investment tool is like puting you money in to a regular saving with low interest but you cant make any withdrawls.
Not a good option.
I don't particularly care for whole life insurance. If you're looking for a permanent life insurance policy, I'd explore universal life and variable universal life.
Back to your question about buying term & invest the rest. If you are ONLY concerned about the price of insurance, then term is your best option.
However, don't totally discount permanent life insurance. It can serve a valuable role in a comprehensive financial plan.
Depends on whether or not you want the coverage to be permanent. The term will eventually lapse or become cost prohibitive.
Also, some estate planning applications call for permanent insurance.
But generally, you're right. Buy term and save the difference into a good mutual fund.
ABSOLUTELY !! Never buy "whole life" !
By investing the difference you will be soooooooo much farther ahead.. You will have THAT money as well while you are still alive. Keep in mind you do NOT need life insurance if, when you die, you will impose NO financial burden upon anyone. Only have enough to bury youself.
If you are leaving behind a family who depends upon you, then you need to do your calculating and get a term that fits it !!
Good Question !! and stay away from whole life ! : )
I agree with you, buy term life insurance and invest the difference.
Financial Expert Suze Orman agrees with this approach, too.
Here's a complete review of Term Life Insurance vs. Permanent Life Insurance:
Term life insurance is designed to help people buy life insurance protection they need when they can't afford to purchase all permanent insurance, or when they only need life insurance protection for a specific period of time. Term insurance provides you with a guaranteed death benefit, but no cash value.
The life insurance premiums will increase at pre-determined intervals such as 1 year, 5 years, 10 years or 20 years. This depends on the type of term life policy you select. A term life policy is often the choice when your life insurance protection needs are higher for a period of time, then drop down to lower levels in later years, such as when your family is growing.
Term insurance can also be an effective way to provide supplemental coverage in addition to permanent insurance during years you need higher levels of protection, such as when your family and other financial responsibilities are beyond your current income.
In these situations, term coverage allows you to purchase important death benefit protection without going beyond your budget. Also, if the coverage is convertible (the coverage can be "converted" to a comparable permanent life insurance policy, without the need to provide evidence of insurability), you can get the coverage you need today — with the ability to purchase permanent insurance coverage in the future.
The Real Cost of Term Life Insurance
However, term insurance has its disadvantages. It isn’t right under all circumstances. Among its drawbacks, be sure to note the following:
You do have to "die to be paid." As unpleasant as that sounds, it's true. Term life insurance provides a death benefit only, for a specific period of time. So, if you outlive your policy period, there is no payout to your beneficiaries. When the term coverage expires, your protection ends, too. And, if you stop paying your life insurance premiums, the coverage ends. Period.
Here’s an example for you - Let's say you own a $250,000 term life insurance policy. You've kept the coverage in force for twenty years, and the policy expires at midnight on June 30. If you die at 11:59 p.m. on June 30, your beneficiary receives the full $250,000 in death benefit proceeds. However, if you die at 12:01 a.m. on July 1, your beneficiary receives nothing under the term insurance policy, since the policy has expired.
Purchasing term insurance is often compared to renting an apartment. When you rent, you get the full and immediate use of the apartment and all that goes with it, but only for as long as you continue paying your rent. As soon as your lease expires, you must leave your apartment. Even if you rented the apartment for 10 years, you have no "equity" or cash value that belongs to you.
There is the Very Real Risk of becoming uninsurable when the term insurance coverage expires. While many term policies are convertible to permanent insurance coverage, others may not be. And, even if the term policy is convertible, there are time limits. If the policy is allowed to expire, you may be required to re-apply for life insurance coverage, and prove insurability by taking a medical exam. If you are found to be uninsurable at that time, you will be without life insurance coverage.
Since premiums increase at each renewal, the long-term cost of term can be very costly. Many people buy term insurance coverage when they are in their 20s or 30s because it appears more affordable when compared to a cash value or permanent life insurance policy with the same death benefit amount. By the time they're in their 40s or 50s, the coverage seems a little more expensive, as the rate goes up. In their 50s, the cost may be comparable to the cost of permanent coverage. Finally, in their 60s, if not sooner, they may decide to drop the policy — not because they no longer need the protection, but because they usually can't afford it. However, the person who paid more for a permanent life insurance policy in their 20s may still be paying the same premium. That's why the term policy's conversion privilege is so important. This valuable feature is usually available in the first few years of the policy, and allows you to convert to permanent insurance without submitting evidence of insurability. Converting to a permanent policy lets you "lock in" a fixed premium, and your life insurance coverage can never be canceled, provided you pay your life insurance premiums.
The Value of Permanent Life Insurance
Cash value or Permanent life insurance is often the best long term solution for many people. The reasons:
Permanent life insurance provides you with lifetime insurance protection, provided you pay your premiums. Usually, once you’ve been approved for coverage, your policy cannot be canceled by the insurer. Regardless of your health, the insurance will remain in force.
Despite higher initial premiums, permanent life insurance can be less expensive than term life insurance in the long run. Many permanent life insurance policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company. Many companies offer the option to apply current and accumulated dividend values towards payment of all or part of your life insurance premiums. If dividend values are sufficient, out-of-pocket premium payments may be reduced after several years, yet coverage continues for your entire life.
So, while life insurance premiums must be paid under both, the permanent and term life insurance plans, long-term out-of-pocket cost of permanent insurance may be lower compared to the total cost for a term life insurance policy.
Permanent insurance can eliminate the potential problem of future insurability. Cash value life insurance policies do not expire after a certain period of time. And, some policies contain guaranteed purchase options, which allow you to buy additional life insurance coverage at specified times, regardless of your health.
Cash Value Life Insurance builds cash value within the policy. This amount, part of which is guaranteed under many policies, can be used in the future for any purpose you wish. If you choose, you can borrow cash value for a down payment on a home, to help pay for your children's college education, or to provide income for your retirement. (Note: Borrowing cash value from your permanent life insurance policy requires the payment of loan interest and will affect your total policy values.) Also, if you decide to stop paying premiums and surrender or cancel your permanent insurance policy, the guaranteed policy values are yours.
Recommendation
When purchasing life insurance coverage — renewing or converting a term policy — look at more than just the premium. Consider the financial rating of the insurance company. Consider your long term goals and needs for protection. A professional insurance agent can discuss your life insurance goals, analyze your insurance needs and review the pros and cons of the various life insurance policy options available.
I hope that helps! Take care and best of luck!
The answer to this one is simple. Is the term policy convertable to a whole life policy at the end of the term without any medical questions or considerations? If so, the term policy is great because the premiums are low and will never go up until the end of the term. However, consider what the premiums on a whole life policy might be at the end of your term. Take into account your age at the end of the term and get a quote for a policy today. This premium will more than likely be more than it will be when you are actually at the end of your term because insurance companies update their mortality schedule about every seven years and we are living longer which allows them to lower rates.
Now, about buying term and investing the difference, do you truly believe you will be disciplined enough to save the difference in the two premiums through the end of the term? If so, it is a great idea based on the assumption of the theory of decreasing responsibility which states when you are young, you have more debt and less saved and when you are older, you have more savings and less debt. Think about it and get some professional advice from a certified financial planner.
Yes that's a great idea! Two problems in life: living too long or dying too soon. Dying too soon is solved by having life insurance. Living too long is solve by having money in retirement account.
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