Whole vs. Term Life – What’s the Difference?
If you’re reading this, you’re probably considering purchasing a life insurance policy. If so – congratulations! It’s one of the best ways to protect your family and will bring you peace of mind for years to come. Before you commit, though, you need to determine what type of policy is best for you: whole or term life?
Whole Life Insurance
The primary benefit of whole life insurance: your agent will receive a big commission. Good for them – but not so much for you. Whole life insurance is exponentially more expensive than term! The only real “benefit” to you is that a whole life insurance policy is permanent. That may sound enticing but, if you’re following the financial principles of Dave Ramsey (like we do), you shouldn’t need life insurance for your whole life! Think about it . . . in 20-30 years, will your family still be dependent on your income? Will you still have a mortgage payment? Or will you have ample savings and an empty nest? If you’re not planning to be in debt for your whole life, then you don’t need whole life insurance, either.
Overall, whole life insurance is a high-cost product with very little return on your investment.
One of the biggest downfalls of whole life insurance is that it includes a “savings” aspect, which requires you to pay into the plan through exorbitant premiums. This is how cash value is built. You can borrow from the cash value, sure, but to do so would also require you to pay a penalty to withdraw that money – your money. When you die, however, your beneficiary receives only the face value of the plan. So what happens to the cash value you spent so much to build? The insurance company keeps it!
“Whole life insurance is one of the worst financial products in the world. It’s the payday lender of the middle class.“ – Dave Ramsey
Term Life Insurance
If you can’t tell already – term life insurance is the better deal. We feel so strongly about this, in fact, that it’s the only type of coverage that we quote!
One of the benefits of a term life insurance policy is that you can customize your term length and coverage amount, allowing you to plan around your personal financial journey. Term life insurance is also way cheaper, saving you a boatload of money over cash-value plans and letting you put those savings toward more profitable and wise investments.
| Whole life policy | 20-year term life policy | |
|---|---|---|
| Jack’s death benefit amount* (we recommend having life insurance coverage equal to 10 times your income) |
$125,000 | $400,000 |
| What’s Jack’s monthly premium? | $100 | $18 (and Jack invests $82 a month into a Roth IRA or mutual fund) |
| Average made in investments after 20 years (by age 50) | $25,619 | $61,994 (assuming a 10% return) |
| Average made in investments (by age 70) | $66,268 | $479,062 |
You’re also far less likely to end your policy early (and put your family at risk in the process) with a term life insurance policy because it’s simple and reliable. Your policy is pure protection – not an account you can dip into. This is crucial! Term life insurance is just that: insurance. Your policy is to make sure your family is taken care of when you die and should never be used as a savings vehicle.
Your Next Step
Providing for your family’s financial future can come with a lot of pressure. Luckily, that’s why we’re here! Zander is an insurance broker, not an insurance company. That means we have no incentive to load you up with add-ons that are high in price and low on value. We work for you. With Zander, you pick your path. If you’re ready to get your free, instant term life insurance quote, click here. Prefer to talk to one of our Guides? Give us a call at 1.800.356.4282, and we will walk you through the application process and answer any questions you may have.