term or whole of life insuranceTerm or Whole of Life Insurance?

Looking at this question, you wonder should I Google again and confirm “it is Term Insurance.” In Google, you will end up with the smart writers who will prove it with a calculator that “Term Insurance is cheaper and easily affordable.” My experience in this industry for the past two decades proves it painfully wrong.  Why? I do not use a calculator to prove it but the actual experience of the beneficiaries. We live in a world where less than 10% of the population has enough life insurance cover.

 

Is Term Insurance cheap?

In most cases, people buy an insurance policy only because somebody pushed them to buy. The agent adds some spices like cash value, cash withdrawal option, pension option and many other things. If you look at the policies sold 5 years ago, what type of policies stay in the book? The plan with cash value stays alive and keeps providing essential insurance protection to its owners and families. Most of the Term Insurance policies would have died long ago. Only because they came across some cash crunch and the first thing they let go of is their Term Insurance, believing that they can repurchase it. Assuming that they lose nothing as they paid only the cost of protection. But the truth is far from that. In the last 23 years, I received many lapsed Term insurance policies from the beneficiaries, asking me, “can I get any claim?”.

In many cases, those policies got lapsed just six months or one year before the insured’s death. Every time it was so disheartening to receive such a lapsed insurance policy. Feeling difficult to tell the beneficiary, “sorry, my dear, you will get nothing. It’s lapsed”. If you want, you can blame the deceased for his irresponsible attitude. The poor soul will not “Rest in Peace.”

Now let us look at the Term insurance with a calculator and see if it is cheap. Many companies advertise that “you can get an insurance policy for the cost of a coffee per day.” Yes, you can but, is it serving the purpose? To make it cheaper, they sell a 5-year term. You may renew it for another 5years but, the premium will be almost double. Are you sure you will be insurable after 5 years? If not, make sure that you are dead before completing that 5-year term. Another option is buying the plan for up to the age of 75. It is not cheap; there is a vast difference in premium for a 5-year term and a 35-year term. Why? The premium goes up as you age. To make it Level term, the premium will be an average of 40 years and 75 years. That means you will be paying more premium in your early years to ensure you are insured up to the age of 75.

 

The Value of Whole of Life Insurance 

In the whole of life insurance, the cost of insurance is deducted based on your current age. The balance money stays invested and can be used to pay the cost of insurance if you stopped paying your premium, making sure your policy stays live.

If you trust life experience over a calculator, I suggest you buy a whole life insurance plan and make sure you stay insured throughout your life. If you do not have the budget to buy a whole life plan, buy a term insurance and replace it with a whole life plan as early as possible. The agent will try to convince you to buy insurance only when you are insurable. The moment they realize you are not insurable, they open their diary to meet the next prospect. A calculator is a machine but life is not working in binary mode.

Hope is not a strategy; guarantee your legacy.