Ed Hinerman On Life Insurance

Should I buy whole life instead of term insurance??

February 3rd, 2007

Let’s start with definitions of whole life, term insurance and universal life. Whole Life as a product it is very rare anymore. These days it is actually more of a generic term referring to permanent, usually universal life insurance.

The definitions! Whole life insurance, if sold correctly, would offer a level premium to age 100 with a cash value accumulation that, at age 100, would equal the death benefit.

Term insurance offers a guaranteed level premium and death benefit for a specific number of years. 10, 15 , 20 and 30 year terms are the most frequently used product.

Universal life, if sold correctly, will have a no lapse guarantee and offer you a guaranteed level premium to age 100. At that time, if you’re still around, no more premiums (payments) are due, and the policy would stay in force until your death.

When I say whole life is something of a generic term these days, what has happened is that newer and better products have entered the marketplace. In most cases they offer better guarantees and better prices than a true whole life policy. So the real question is should you have term insurance or universal life insurance with a no lapse guarantee.

Two quick questions take 90% of the guesswork out of the decision.

Term question! Can you foresee a point in the future of 30 years or less when you will not need the amount of insurance you need now? A few examples….if you have a 10 year loan and want life insurance to pay it off if something happens, a 10 year term is the right product. If you have a young child you would want a long enough term to get them to the point that they are no longer financially dependent on you. For most a 20 year term would suffice, but if you were planning on having more children it might be prudent to lock in a 30 year term.

 Universal life question! Is the need permanent? Examples would be a final expense policy.  Final expenses don’t occur until you die, so permanent is more appropriate than term. Estate preservation is another good example. If your estate is large enough that you need to carry life insurance to help defray the estate taxes upon your death, you don’t want a policy that you can outlive.

Lastly, if someone suggests you buy a whole life policy, I suggest this course of action. Tell them you want them to provide illustrations of the whole life policy along with illustrations of a universal life policy with a no lapse guarantee. Then ask them to show you a commission schedule that shows what they would earn over the next 10 years on each of those options. If they actually provide the information I think you will have an eye opening education into why some people still sell whole life.

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Entry Filed under: estate taxes, insurance, life insurance, term insurance, universal life, whole life