Posted in Quick Guide to Insurance

Life Insurance 101

Question:  My husband and I are in our late 30’s with 2 kids and are looking at life insurance options.  I noticed that whole life is much more expensive, but the agent is telling me that whole life has a savings plan included that we can borrow against if we need to.  Is whole life or term insurance better?

Answer:  Thank you so much for this question.  I love any opportunity to help people understand about life insurance and to squash the myth about whole life.  First of all, let me address who should have life insurance.  Any adult should have life insurance.  But it is imperative to have life insurance if you have kids or a spouse depending on your income to survive.  The next most important question is how much should I have?  You will want to get about 10 times your annual income on yourself.  If you are a homemaker and do not have an income, you will want to get about $400,000 (equal to $40,000/year income – the cost to hire someone to do what you do).  If based on your age and health, you can get more for very little money, that is ok too.  10 times is the minimum. 

Now the big question.  What kind to I get – term or whole?  The answer is 97% term ( I will explain the 3% in a moment).  Let me explain how whole life works and this should clear it up for you.  You are going to pay at least 10 times more a month for the premium on whole life for less coverage.  The main selling point they have is the savings plan you mentioned.  But it is not a savings plan at all.  It will, as the years go by, build up a cash value in the policy that you can borrow against.  However, when you die, your beneficiary does not receive the savings.  They will only receive the original amount of the policy.  So, therefore, you have wasted the extra money you paid for the policy.  What you want to do is buy 15-25 year (based on your age and the age of your kids) term life insurance.  This is always your best buy.  The 3%, mentioned above, is for people who cannot get term life insurance.  Sometimes, people are uninsurable due to health reasons.  You need some kind of life insurance, so only then do I say get whole or guaranteed life insurance, whatever you can get.

You will want to shop around and find the best rate on term life insurance.  The rates are very low and very competitive right now.  Thank you for your question and thank you for taking care of business.  If you need anything further, contact me at www.debbiking.com.

Posted in Building Wealth, Quick Guide to Insurance, You and Your Money

Life Insurance: Term vs. Whole

Question:  My wife and I have a whole life policy.  However, we have heard that term life insurance is cheaper.  Which is better and if we were to switch to term life, how would we handle the cash value on our whole life policy?

Answer:  This is a great question and I am always happy to answer it.  Term life insurance is always your best bet.  Here is why.  You can get a 15-20 year term life policy of $400,000 for about $30 per month.  This life insurance will cover you while you are paying off your mortgage, getting out of debt, and raising your family.  Right now, you need about 10 times your income on both you and your wife.   After 20 years, you should be in a position, financially speaking, to not need that much insurance. 

Whole life insurance is sold mostly on the concept of cash value.  And you are paying more for this concept.  However, when you die, your beneficiary does not get the cash value of the policy.  Only the face value.  You would be much better to take the $100 per month that you are paying extra for whole life and invest it.  You would make 10% on your money and when you die, your wife would inherit the mutual fund. 

You need to make sure that your term insurance is completely in place before cancelling your whole life policy, just in case.  Because whole life is better than nothing.  Once the term insurance is in place and you cancel your whole life policy, you can take the cash value and use it to get out of debt or invest if you are already debt free.  There will be no tax on this money if you have paid into the policy more than the cash you get out, which is almost always the case.