Saturday, December 7, 2013

Whole life insurance versus Term. You could be mising out on thousands in savings!

Let’s review the following situation.  Mike, a young man in his 20s bough a whole life insurance policy for $1,600/year.  Fast forward ten years, the policy’s current value is $1,300 and policy coverage is $95,000 in the event of death.  This policy was sold as a supplement to disability insurance, i.e. the value of the policy could be used as a savings bond/savings account in the event of the insured’s disability.

Let’s revaluate an alternative scenario.  What if Mike bought term life insurance at $250/year and allocated the remaining $1,350 to a savings account that earned 2.5%.  He would still have his insurance coverage of $95,000 but his savings value would be at $15,503.

Whole Life v Term Life Insurance

Comparative table

Whole Life
Term Life Insurance
Annual Premium
 $             1,600
 $                 250
Death Benefit
 $           95,000
 $           95,000
10 Year Cash Value of Insurance
 $             1,300
 $                    -  
10 Year Savings
 $                    -  
 $           15,503

In this example, over a ten year period Mike could have saved $12,200 more if he opted to buy Term Life insurance.  If your whole life insurance coverage is more than $95,000 and your annual premium is higher you could be saving more!!!  There is a limited number of circumstances in which whole life policy is a better solution than a simple term life policy.  You should discuss the advantages of whole life insurance with a financial professional that is not commissioned for selling insurance products.

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