To Term or not to Term – That is the Question

In order to answer this question, we should first understand the main differences between these two basic types of insurance plans.

What is Term Life Insurance?

Term life insurance is temporary protection provided during a specified period of time such as ten to 30 years. Coverage often expires at the end of its term, but it may be renewed for another term based on age availability and other factors. Term life insurance also does not build cash value. The analogy that can be made for term life is that it is simply like “renting a house”, temporary ownership with no equity build-up for you, the renter. Term life insurance offers the most death benefit protection at the lowest cost and is a critical part of a financial plan when the owners has debt and other financial responsibilities like a mortgage, children and anticipated college and retirement expenses.

What is Whole Life Insurance?

Whole life insurance is a type of insurance that covers the owner for a life time.  A side benefit is that the policy also accumulates cash value that can be used later in life.  A good whole life policy with guaranteed cash value can be a valuable piece of “financial property.” The death benefit, of course, will be paid to a named beneficiary should the insured pass away while the policy is in force. The premium cost on a whole life policy is level, guaranteed and will not increase as the insured ages. Unlike term, whole life does not expire, but “matures” or “endows,” often at age 121. We can simply compare a whole life policy to “buying a house”, permanent ownership (for as long as you own it) with equity build-up for you, the owner.

Buying term life insurance is fairly common among younger individuals, mainly because it is more affordable than whole life. People generally, are seeking to maximize their insurance protection with the least cost during their 30s and 40s. That's the time they are most likely paying for their mortgage, raising a family, setting aside funds for their children's education and their own retirement, starting up a business, etc. Unfortunately, many do not take life expectancy, future needs and the increasing cost of term insurance into consideration. For most people, the need for life insurance dwindles as they grow older. By the time they are in their 50s, and 60s, their house is most likely paid for, their children are grown, but the need for life insurance, though decreasing, still exists. This is also the time they may have a few more dollars to spend!

The objective of having life insurance coverage at older ages usually changes to more of a focus on final expenses, estate planning, charitable and legacy giving. Considering that term life insurance expires at a specified age (85 with Vantis Life) and the cost increases substantially upon renewal (at the end of their original term, 10, 15, 20, 25 and 30 years), it may be cost prohibitive to continue with the term after a certain age (i.e. 60 or 65). This is why many older individuals convert their term insurance to whole life prior to age 65 so that their premiums stay level even though the coverage amount will be less.

So…. In a nutshell, buy term when you are younger and have lots of debt.  Start buying whole life as soon as you can afford it to replace the term policy when it expires.  And if you want to protect your business or have the ability to leave legacy money to loved ones, look into whole life insurance to fill those needs.

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