Types of Life Insurance: Term vs. Whole vs. Universal Life Insurance
Term vs. Permanent Life Insurance
If you ever listen to any financial advice on talk radio, you may already know that financial guru Suze Orman hates whole and universal life insurance, and she only likes term life insurance. Other financial and insurance professionals may beg to differ, and they believe that the right type of life insurance for an individual really depends upon the person’s budget and situation.
At Baby Boomer Concerns, we believe that our readers are smart enough to do their own research to make their own decisions, and we just hope to present a basic outline as a basis for getting more information online or from local insurance agents or life insurance companies. So here’s our ultimate guide to term vs. whole vs. universal life insurance. This discussion is mainly aimed at people who are considering life insurance over 50, but younger people could benefit from this topic too.
Term Life Insurance is Cheaper
There is no doubt that term is cheaper. For the same amount of coverage for the same individual, premiums will be a lot lower for term, and this may help people afford more coverage and even hold back some money for other uses like paying off debt, investing in the market, or stashing in a savings account or retirement annuity.
The reason that term is cheaper is because in its most basic form, it only provides life insurance and it is temporary. You may buy a term policy for 10 or 20 years, but when that policy ends, you only have an expired policy with no cash value. There are hybrids, like return-of-premium (ROP) life insurance, that are exceptions to this rule, but we are pretty sure that Ms. Orman doesn’t like them either.
Pros and Cons of Term Life Insurance
- Term life insurance costs less.
- Term life insurance expires at the end of the contract with no cash value.
- Term only provides coverage for the life of the insured person or people.
Term vs. Whole Life Insurance
Whole life is the oldest form of life insurance, and it does stay in force for a lifetime. That is, it stays in force as long as the premiums get paid or the policy has been paid off. Of course, the biggest problem with term is that the covered person will absolutely be older and could have developed health issues after their term policy expires, and this means it could be very difficult or even expensive to even buy term. Whole life premiums are level through an entire lifetime, so people can lock these in at a certain age.
What to know about whole life insurance:
- Coverage can last a lifetime.
- Premiums stay level, and the policies can get paid off.
- Whole life insurance can grow a cash value that can be used as an asset.
- The cash value of whole life could be used in a senior life settlement, borrowed against, or simply cashed in.
- Typically, senior life insurance policies that you see advertised which offer to issue policies with little or no underwriting are small whole life insurance policies, and it might be the only choice available to elderly, ill, or disabled people if life insurance is the best choice.
- Whole life insurance costs more than term life insurance.
Understanding Universal Life Insurance
This is the newest form of life insurance, but it is also permanent insurance life whole life. It is similar to whole life because it can grow a cash value, and that is why people are mainly interested in this product. It can become an asset, as well as coverage on the insured person’s life, and many people who purchase this type of life insurance already intend to use it while they are still alive. In that way, it has become a sort of vehicle for building an asset or saving as well as coverage.
Why Would People Consider Permanent Retirement Life Insurance?
Look, it is still very possible for a person in their 50’s, 60’s, and even possibly their 70’s to buy term life insurance. They may find a relatively good price on 10 or 20 year policies. If temporary coverage at a low price is what you want, than start shopping for cheap term life insurance.
However, some permanent life insurance policies could provide an advantage. For example, some have riders to help cover long term care expenses or other medical bills, and they could be useful if you need a disability or long term care insurance alternative. In other ways, because of the cash value and the fact that permanent coverage does not expire, both the death benefit and the cash value can get tapped while the insured person or owner still lives.
The right choice really depends upon your own financial situation, other retirement planning that you have done, and your preferences. Financial gurus have their point of views, but you have yours too.