i, today I’m going to show you everything you need to know to understand the difference between whole life and term life insurance. So that you can make a better decision for you and your family.
Ok, now when it comes to life insurance what’s really important is to understand the purpose of your life insurance and for 99% of us, the reason that you have life insurance is to protect your families, for no other
the reason. It’s not an investment, it’s not for state taxes for most of us you’ve got to have over five and a half million dollars or eleven million dollars to really worry about life insurance for estate taxes. So for most of us, it’s about protecting our family and cat in case we have an untimely death.
All right, now when it comes to your life insurance agent. That many of them are very good people, but they often want to get you know to maximize their own income, and they make a lot more money by selling the whole life insurance when compared to turn life insurance. And but they’ll still try to often convince people to do it, and they’ll say well there’s an investment element to it. If you put your money into the whole life, well what happens is over time? The investment grows and will pay for itself, and it’s version malarkey, and I’m going to show you exactly why.
Is Life Insurance an Investment?
If we go to the life insurance an investment picture above, you’ll see this example shows a $500,000 policy for a 41-year-old person. And if you look at we’re going to compare the guaranty values for term life vs. whole life, and with the term life policy, the annual premium is $495, pretty cheap. And the whole life premium is $6,550, a lot more money. So over ten years, you’ve paid for the term life you’ve paid $4,950, a total of that.
But with the whole life, you’ve paid $65,000, over $65,500, five hundred now. It’s true as you can see that there’s a cash value with the whole life after 10 years, of $56,500.
And with term life, there is no cash the value. So if you put in 65,000 and get back 56,000, your net cost is about
Now with the term life as you can see your net cost was $4,950. So it’s a little bit less than half as expensive. Term life is a little bit more than half expensive his whole life. But it’s a whole life lot of money cheaper.
How About After 20 Years?
Now let’s look at the next picture, and we’ll look at 20 years it makes it’s very interesting. Over 20 years again your term life insurance is still four hundred ninety-five dollars, because of you bought a 20-year policy, you didn’t buy tenure policy, about a 20-year policy.
In 20 years of the term life, you’ve paid in a total of $9,900, and in the whole life, you’ve paid a total of $131,000. But with the whole life, you’re going to get $144,500 back. So actually you’ve paid $131,000, you’re putting $144,500 in your pocket. Your total net profit is $13.500, and with the term life you paid out $9,000 and you can get anything back. So isn’t whole life much better? no way.
And here’s why. Your twenty years cost, you spent $121,000 more for the whole life. But you got a $144,000 back so your net gain when you compare the whole life to the term life is $23,000. Okay, now you put in $121,000 and you got back $144,000 over 20 years. So you’ve gained about $23,000 in 20 years, on an investment $101,000. That works out to a 2% return over 20 years.
That’s a very what we call the sophisticated investment world, a stinky return. So even when you compare the whole life with the investment element, it doesn’t hold water. Now, what often times the whole life agents will tell you, is that well the projected return is much higher the projected return is 5% or 6%. But you look at the guaranteed values, when you look at a whole life policy, look at the guaranteed values, not what the projected values. That’s because insurance agent runs a company can hold they must perform at the guaranteed rates, they don’t have to perform at the projected rates.
I’ve never seen a whole life insurance policy paid for anyone other than insurance companies in the insurance agency. So when you come back and look at a term life will give you more protection because for the same dollar you can buy lots more protection. And the investment element of whole life just doesn’t work.
I hope this was helpful to you and see you next time.