RSS FeedTerm vs Whole Life Insurance » JoeTaxpayer
Joe – Term is clearly much cheaper, and a better option for those who DON’T have a lot of disposable income and haven’t maxed out all beneficial tax vehicles like the 401k.
I have seriously thought about Whole Life via my provider USAA, and the guaranteed 5% return on the cash component does sound good. However, I passed since the amount I wanted ($2mil) would take too much out of my cash flow.
Take the Term for 10-30 years if your company’s life insurance coverage isn’t enough, and hope you never have to use it!
“There are two main categories of life insurance, Term and Whole Life….”
Actually, the two main categories of life insurance are “term” and “permanent”. The distinction is not trivial and making a good decision about life insurance coverage requires that one understand this.
“Quite a bit more complicated are Whole Life and its variants, namely, Traditional whole life, Universal life, and Variable life.”
There are two issues with this statement: first, Whole Life is no more complicated than term insurance. I’d argue that in many ways it is actually less so. Second, universal life is not a variant of whole life. Variable life is, but I’d wager dollars to donuts that you meant “variable universal life” because variable life (without the “universal” part) is not very popular these days.
“…but in return you get dividends which can be used…”
Sometimes. a “Participating Whole Life” policy will pay dividends, and “Non-Par” policy will not. Regardless, both par and non-par whole life will accumulate cash value.
“The investment vehicle is hidden from the customer, and the insurance company announces the return each year, with a minimum usually set.”
Well, for a non-par WL policy, this statement is just incorrect. The “returns” in a non-par WL policy are contractually guaranteed. In a par WL policy, there are contractually guaranteed returns as well, and then the non-guaranteed dividends come on top of that. You are correct that the insurance company sets the dividend rate each year, but there is no minimum for this.
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