Term vs. whole life insurance is one of the oldest debates around. We find that people are on polar opposite sides of this debate and often times for reasons that don’t make sense. I have heard, “I will only buy this type of life insurance because that is what my brother had and its the best”. Another popular one is, “Suzie Orman and Clark Howard said to only buy term insurance”.
The answer to which type wins is that it is impossible to say. Both types serve great purposes and can be used as very effective tools. Term life is just like renting your insurance and is less expensive initially than whole life. With term you will select a term period of 10, 15, 20, or 30 years and the premium will be level for that period of time. Term is a great product that you can get a lot of in your greatest time of need. For example, if you have just started a family you will want to maximize the amount of life insurance while your kids are growing up. Term is so affordable it will allow you to buy a big amount during that time.
On the other end of the spectrum is whole life insurance. When the term life’s level term is ending, the premium will start going up briskly. The whole life premium starts off being more than the term, but remains level for the life of the contract. By year 21 of a 20 year level term, you will probably be paying more for the term than the whole life at that point. Whole life is a permanent solution unlike term. Whole life is designed to build equity like owning a home and to last for your whole life. The cash value that is accumulated inside the policy can be borrowed against like a home equity line of credit.
Which type is better? The answer is neither and often time it makes sense to have some of both to meet different needs.