Term Life Good Whole Life Bad

Term life insurance vs whole life insurance. Which is a better choice for you? Every insurance plan serve a purpose - be it - Term life insurance, Whole Life insurance or Edowment life insurance. But what do you need? Even a good product, bought for the wrong purpose, will fail.

The purpose of term life insurance is to protect your family for a specific time period. If you buy the right term life insurance, it does the job beautifully well.

On the other hand, whole life insurance has two purposes. The first is to protect your family. The second purpose of whole life insurance is to make insurance companies and agents lots of money.

When you buy insurance (whole or term), the insurance company knows what your odds are of surviving during the period of the insurance. This is actuarilly calculated - called mortality risk. Your mortality risk increases (the chances of you dying go up) with age.

You can either buy annual term insurance and pay higher premiums every year. Or buy 10, 20 or 30-year term. When you buy term insurance for many years, you pay a higher premium the first year than you would if you bought annually renewable term, but the premium is level for the period. So if you buy 10-year term, the premium for the insurance is going to stay the same every year for 10 years.

When you buy a whole life policy, the insurance company has the same exact mortality and administrative costs, so they charge you the same costs. But it doesn’t stop there. The insurance company actually needs to collect more. A lot more.

Why? Because with whole life, the deal is, you not only pay the cost of insurance, you pay extra. The insurance company takes that extra money and invests it. In theory, the earnings from those investments should earn enough to pay the premiums for you. So, in other words, after a certain number of years pass, the insurance is paying for itself. Isn’t that wonderful?

The only problem is that the insurance companies charge very high commissions for the investment elements when you buy whole life insurance, and it rarely works as they project. They also charge very high expenses. The bottom line is, you could invest that extra money yourself and grow it much quicker than if you bought whole life and let the insurance company do it for you.

That’s why term life insurance is much cheaper than whole life.