Life Insurance

Whole Life vs. Term Life Insurance

One of the most popular questions I get asked is, “What is the difference between whole life insurance and term insurance and which do you recommend?”.  Both types of insurance can and will protect your family in the event of your premature death but there are a couple of key differences.

Whole life insurance is permanent insurance.  As long as you are paying the premiums, the insurance will remain in force.  With this permanent policy comes a cash value aspect. A portion of your premium would go to pay for insurance and a portion would go to fund the cash value.  It is possible that at some point your cash value could grow to be big enough that you could stop paying premiums. In this case, the cash value would be used to fund premiums and your insurance would remain in force.  

Term life insurance is exactly what it sounds like.  It is insurance that will be in force for a specific term whether that be 10, 20 or even 30 years.  Once that time period is up, the insurance no longer exists. This insurance is cheap and easy to understand when you compare it to other insurance products on the market.  

I carry a term life insurance policy equal to ten times my annual income.  If you bring home $50,000 a year, this would mean you would require a $500,000 life insurance policy.  To get this type of policy in whole life coverage would be entirely too expensive to carry. Because whole life insurance policies guarantee to pay out until death, along with the accompanying cash value, they are much more expensive to maintain.  

I decided to buy term insurance and invest the difference.  Essentially, you would pay for term life insurance and invest the remainder of what that would cost you in whole life coverage.  For example, a 30 year term policy for a healthy, 30 year old is around $380 per year. The equivalent in whole life is $4,000 per year.  If you decided to buy term insurance and invest the difference of $3,620, it would equal $1,055,479 after 30 years! Under this approach, if you have made the commitment to become debt free, you could be self insured by the time your policy expires!  However, the key to this approach is that you actually have to invest the difference. Notice I did not say, get term life insurance and use the savings to go shopping or take a nice vacation.

Ultimately the choice between whole and term insurance is up to you.  But it is better to make an informed decision, instead of allowing insurance salesman to confuse you into buying a policy that you do not understand.  It is very possible to get the coverage you need without breaking the bank!

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“I can promise that if you read and apply what has been written here then you will eliminate financial regret from your life.” – Joe Sangl

 

Do You Have Enough Insurance?

I do not like talking about death.  I do not know many people that I do.  But, I am not deaf to the fact that we are all going to die.  Every single one of us. At this point, we all know that life insurance is important and hopefully you have taken the appropriate steps to protect your family.  But, is it enough? Is your policy enough to cover your debts and provide a comfortable life for those you leave behind?

I carry an insurance policy equal to ten times my annual income.  With an income of $50,000 per year, this would mean a person should obtain a $500,000 policy.  If I pass away while my children are still in the household, I want my wife to be able to focus on raising them without having to worry about replacing my income.  

With that being said, I also carry no debts.  My home, vehicles, and school loans are paid off.  I do not need life insurance in order to repay these debts.  If you do have debts, you should consider these when deciding how much insurance you need.  

The total amount of insurance that you require to secure your family should not break the bank.  For a healthy 30 year old male who does not use tobacco products, a $500,000 policy would cost about $25 a month in term life insurance.  For a healthy 30 year old female, the same coverage would cost about $20 a month. That is really cheap for such great coverage.

My personal goal is to become self-insured.  If you are able to become debt-free and invest wisely, you will eventually have enough money that your need for life insurance will diminish greatly.  Think about it. Suppose you die, leaving behind no debts and more than $1,000,000. You have probably become self-insured.

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Want more tips like this one?  Subscribe to the Monday Money Tip Podcast HERE.

SPECIAL OFFER: This month only, get your own copy of Joe’s book, I Was Broke. Now I’m Not. for 25% off plus free shipping!  Get your copy HERE before July 31st!

“I can promise that if you read and apply what has been written here then you will eliminate financial regret from your life.” – Joe Sangl

The Details Behind Term Life Insurance Application Process

Many people may know that they need term life insurance, but they do not clearly understand how the process works.  In the presence of unanswered questions, many people make a choice (a poor one) to do nothing.  My hope is that this post will help answer your questions about the term life insurance application process!

Acquiring term life insurance generally follows the following steps.

  1. Find term life insurance that fits your needs.
  2. Request and fill out an application (can obtain from your insurance agent or do this ONLINE)
  3. A nurse contracted by the life insurance company will contact you to set up an appropriate time for a health analysis (usually involves a blood test and a basic physical).
  4. Your application is either accepted or denied.
  5. If accepted, you will be provided your actual premium rate cost and the policy will go into effect once payment is made.

NOTE #1: Smoking and weight issues do not necessarily mean that you can not obtain life insurance, but it usually results in higher premiums due to increased health risks.

NOTE #2:  I carry 10 times my annual take-home pay in term life insurance in 20 or 30 year level term coverage.  For example, if a person makes $30,000 in annual take-home pay, then that would be $300,000 in term life insurance coverage.

Term Life Insurance Application Process – How It Typically Works

Many people may know that they need term life insurance, but they do not clearly understand how the process works.  In the presence of unanswered questions, many people make a choice (a poor one) to do nothing.  My hope is that this post will help answer your questions about the term life insurance application process!

Acquiring term life insurance generally follows the following steps.

  1. Find term life insurance that fits your needs.
  2. Request and fill out an application (can obtain from your insurance agent or do this ON-LINE)
  3. A nurse contracted by the life insurance company will contact you to set up an appropriate time for a health analysis (usually involves a blood test and a basic physical).
  4. Your application is either accepted or denied.
  5. If accepted, you will be provided your actual premium rate cost and the policy will go into effect once payment is made.

NOTE #1: Smoking and weight issues do not necessarily mean that you can not obtain life insurance, but it usually results in higher premiums due to increased health risks.

NOTE #2:  I carry 10 times my annual take-home pay in term life insurance in 20 or 30 year level term coverage.  For example, if a person makes $30,000 in annual take-home pay, then that would be $300,000 in term life insurance coverage.

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