Published August 16, 2016|6 min read
Shopping for life insurance isn't always easy. For starters, there are two common types of life insurance that are very different from each other: term life insurance and whole life insurance. But it's not always obvious why one is better than the other, or if one is better than the other. We put together this video to explain some of the biggest differences between term and whole life insurance. We explore what each type of life insurance is, how much these types of life insurance cost, and what the fine print is on these policies. At the end of the video, you'll have a good idea of which type of life insurance is the best fit for you.
Hi, my name is Brian Grimes. I'm a Certified Financial Planner and I'm a Senior Client Service Manager here at PolicyGenius, and today we're going to do a face off, a head to head: term life insurance against whole life insurance.This is the most common question that we get here at PolicyGenius. "Which one of these two types of policies is best for me as the typical American?" So let's dive right in.
First we have, "What is it?" With term life insurance, you’re getting pure life insurance coverage. You're just paying for the cost of the insurance itself. There aren't many bells and whistles here, not a lot of extras, unless you're adding on riders. You're really keeping those costs low, which we're going to get into, but that is the main thing with term life insurance. With whole life, you're paying for insurance plus some type of a savings vehicle. Typically, dividends accumulate inside a cash value, and you can borrow against it to pay for different things. That's how it's positioned to you by the typical agent. But that's the major difference here. One is just life insurance coverage, the other is insurance plus savings, which is why this is more expensive.So let's talk about the price. What types of prices will you see with a typical term life insurance policy? If you're otherwise healthy, young, in your 20s, 30s, 40s, you can see premiums in the $20 to $30 per month range. This makes it very affordable. It's easy to fit it into your cash flow. Now, with whole life, these premiums are typically four times as much. So you're going to be pretty hard pressed to see a premium below $100 a month with your typical whole life insurance policy, even if you're in your 20s, 30s, if you're talking about, you know, a quarter million dollars in coverage, half a million dollars in coverage. This is one thing to keep in mind here. Term life insurance is much cheaper and just life insurance.
Fine print. What is in the details? The devil can be in the details, a lot of things can be in the details here. There's very little fine print with term life insurance. There are two main things that you have to watch out for. One is the suicide clause. This is a two year lookback. If you commit suicide within the first two years of the contract, the policy, in most cases, will not pay out. Secondly, there's a two year lookback clause that says if you die within the first two years of the contract, the company can take a look into the death claim and they can challenge it or contest it. This is a fine print item, but there's not really much fine print here with term life insurance. Outside of that, outside of the two years, you're pretty much all clear. With whole life insurance, there's lots of fine print and I mean a lot of fine print. You'll be actually hard pressed to see it. Just like here, you can barely see the fine print. It's buried in the contract. You'll need two, three magnifying glasses to get to it. So lots of fine print and that's because there are a lot of different riders, there's this cash component, there are guaranteed fees, maximum fees, a lot of things that'll literally make your head spin. So this is a big con with whole life insurance and it has been over the years.And then the last question is, "What's the best fit with term and whole life?" Well, term life insurance is a really good fit for you if you're on a low budget and if you're just looking to protect your family and your investments. This is a self-completing asset that you are purchasing. If you die too soon, you die prematurely, boom, there's a half a million dollars of tax-free money that's going to go to your beneficiaries here. Whole life is better suited for complex financial plans. If you have a financial planner who wants to help you to create an endowment plan or you need this coverage for estate planning purposes, or you need a long-term care rider, whole life could be a better option for you. But really we found that whole life is for the one-percenters out there who can afford these hefty premiums.
So if you look at term life insurance: Pure life insurance, $20, $30 a month on average, if you're healthy, can be very affordable. Not a lot of fine print, those two year clauses that I told you about, two of them, and it's a best fit for most Americans, about 80% to 90% of Americans who are just looking to protect their family and their investments. Whole life insurance, insurance plus savings, a lot more complex, four times the cost on average, fine print that you can barely see, and even if you do get to it, you probably won't understand it clearly. It's for complex financial plans, so the one-percenters, the most affluent Americans.This is how it stacks up. If it's me, my money is going on term life insurance, so the house has term life insurance. Which one do you choose? It's really up to you and your specific situation, but if you want to learn more about any of these individual types of policies, check out the rest of our YouTube channel. Plus, we take a real deep dive into what underwriters think, what you need to know, and how agents are out there selling these policies to you today. Feel free to reach out to us if you have any questions. Leave a comment in the box below, call us, you can chat with us, we have a live chat where you can speak to our agents, they'll answer any questions you have out there. Thanks for your time and reach out to us.
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