TERM VERSUS WHOLE LIFE INSURANCE
By Chuck Davis, CLU, ChFC
The debate continues – term or whole life. Which contract is better or right for you? Both products can be very useful, but the choice should be dictated by your specific situation. Let’s examine the details.
Whole life is a form of permanent insurance which also includes other forms such as universal, indexed universal, and variable life. Permanent coverage is an insurance plan that has a cash component and a death benefit. These plans are popular with the consumer that wants to accumulate some money as well as have insurance coverage. They can get complicated because of the different investment options that offer the range from guaranteed cash reserve to full investment with no guarantee of accumulation. Therefore, you can design a plan that fits you and your needs. These plans can be valuable because the cash grows tax-deferred and can be accessed via loans and withdrawals. It is possible to reach a point in the contract when you have enough cash accumulated to pay the mortality cost and then take cash withdrawals to supplement your retirement needs. This is all inside a tax favored vehicle. Build an irrevocable life insurance trust and put permanent life inside it and you will have a dynamic tandem for protecting yourself and your money. This takes some design work and professional guidance.
Term life provides coverage for a certain time period. It pays when you die and the beneficiaries receive the benefit, typically tax-free. It is cost effective compared to permanent life insurance. Again, it is for a period of time. Your premiums are similar to automobile insurance premiums in that some life event must occur while the plan is in force to collect. It is a great buy initially. However, there is the possibility that you will outlive the coverage. The big benefit with term is that the premium is very budget friendly.
The talking heads on television, such as the Ormonds, Ramseys, and Mutual Insurance Companies, offer an extremely biased opinion. They recommend buying term and investing the difference that one might spend on whole life. A biased appraisal of such valuable personal property is not in the best interest of the consumer. We want to know how to purchase what’s good for us, not ‘one size fits all’ approach. Do we want these people making decisions for us? Probably not, so let’s look at these tools that are vital to a properly constructed financial roadmap. Do your homework and you will find the answer that is right for you.
In summary, the best life insurance is the one in force at the time of your death. For many of us, using both tools is ideal. Then you have cost effective protection and tax favored cash and permanent protection.
Whole life is a form of permanent insurance which also includes other forms such as universal, indexed universal, and variable life. Permanent coverage is an insurance plan that has a cash component and a death benefit. These plans are popular with the consumer that wants to accumulate some money as well as have insurance coverage. They can get complicated because of the different investment options that offer the range from guaranteed cash reserve to full investment with no guarantee of accumulation. Therefore, you can design a plan that fits you and your needs. These plans can be valuable because the cash grows tax-deferred and can be accessed via loans and withdrawals. It is possible to reach a point in the contract when you have enough cash accumulated to pay the mortality cost and then take cash withdrawals to supplement your retirement needs. This is all inside a tax favored vehicle. Build an irrevocable life insurance trust and put permanent life inside it and you will have a dynamic tandem for protecting yourself and your money. This takes some design work and professional guidance.
Term life provides coverage for a certain time period. It pays when you die and the beneficiaries receive the benefit, typically tax-free. It is cost effective compared to permanent life insurance. Again, it is for a period of time. Your premiums are similar to automobile insurance premiums in that some life event must occur while the plan is in force to collect. It is a great buy initially. However, there is the possibility that you will outlive the coverage. The big benefit with term is that the premium is very budget friendly.
The talking heads on television, such as the Ormonds, Ramseys, and Mutual Insurance Companies, offer an extremely biased opinion. They recommend buying term and investing the difference that one might spend on whole life. A biased appraisal of such valuable personal property is not in the best interest of the consumer. We want to know how to purchase what’s good for us, not ‘one size fits all’ approach. Do we want these people making decisions for us? Probably not, so let’s look at these tools that are vital to a properly constructed financial roadmap. Do your homework and you will find the answer that is right for you.
In summary, the best life insurance is the one in force at the time of your death. For many of us, using both tools is ideal. Then you have cost effective protection and tax favored cash and permanent protection.
Chuck Davis, CLU, ChFC, is the Managing Principal of Main Street Financial, Inc. Our mission is to assist businesses with building financial sustainable financial security. Our process provides guidance, advice, and solutions for the private business owner and individuals.
chuckbpw@gmail.com, www.mainstreetfinancialinc.com, 843.830.0555
chuckbpw@gmail.com, www.mainstreetfinancialinc.com, 843.830.0555