Have you ever wondered whether you were better off getting term life insurance or whole life insurance?
In our last posts, we briefly covered term life insurance and whole life insurance separately.
However, in this post, I want to quickly help you in determining which is best for you by giving you four questions you need to ask yourself to make that determination.
The first question you need to ask is...
What are all of the reasons I am considering getting life insurance?
There are a variety of answers that can help point you in the direction of which option is best.
Term coverage is typically best aligned for temporary needs, such as:
- To make sure your kids are taken care while they are still dependent on you.
- It may be to make sure your spouse has the home free and clear if you were to pass away before it’s paid off.
- It may be to replace your income if you were to die during your working years.
- Or it honestly may be that you’re not quite sure why, but you’d just feel better if you had it.
On the other hand...
Whole life insurance may be best suited for you if you have any of the previously stated concerns, plus:
- You want to pass down a tax-free legacy for your loved ones regardless of when you die.
- You want to set up an infinite banking policy.
- You want a bond alternative that acts as a market volatility buffer in retirement.
- You want a savings account that provides higher long term yields.
- Or it may be that you want a way to systematically get out debt.
But regardless of what you answered from this first question, you need to ask yourself…
What does my current cash flow look like?
It doesn’t always matter what we want in life, sometimes we simply can’t afford it. Whole life insurance is 5-15 times more expensive than term.
If you really want whole life insurance, check your current cash flow and see if you can even comfortably afford the premium necessary for the amount of death benefit you desire. If you can’t, convertible term insurance may be the best option for you to get a policy in place with a goal of converting it to permanent coverage in the future.
For those of you who do have the cash flow each month, you need to consider how you are currently allocating your money before jumping on board.
If you aren’t funding your Roth IRA or aren’t contributing to some sort of retirement plan, it may be wise for you to consider prioritizing your cash flow towards some of those goals by choosing the cheaper term alternative.
If you are funding your retirement accounts, and still have the cash flow, or if you aren’t comfortable with market-based investments, whole life insurance when structured properly can be a great way to diversify your money with the cash value that comes with your death benefit.
In this case, make sure not to get just an ordinary whole life insurance policy.
Check out some of my other posts or videos, if you aren’t quite sure what I’m talking about. Properly set up infinite banking policies can make a dramatic difference in the overall performance... like a six-figure death benefit and cash value difference in many cases.
The third question you need to ask yourself is...
Am I someone who sticks to things long term?
Whole life insurance is more expensive because it guarantees a level premium for the rest of your life, though you do not have to pay in that long. If you decide within the first couple years that you can’t afford to keep paying the higher premiums or that you no longer like the idea of whole life insurance.
Cancelling it in the early years will mean you will have wasted some money!
And finally, the fourth question you need to ask yourself is...
Could I benefit from both?
Getting the whole life for all the benefits listed earlier, but still within your budget, and an extra term policy for the slim yet financially devastating chance you pass away prematurely?
Term and whole life do not have to be mutually exclusive, in fact, 15% of life insurance policy holders actually have both. Don’t be afraid to get creative, if necessary, in order to match your unique needs!
If you want stay on top of the content and learn more about financial strategies that will help you plan and protect your financial future, then you should check out my YouTube channel as well as Stephen Spicer's.
Until next week,