Dilemma: Whole Life or Term Life Insurance?
I’m trying to get insurance for my mom through Colonial Penn. I’m so lost right now. If something happens to her I want all of burial cost to be covered. She’s 48 with minor health problems. I got a quote for Whole Life .48, Term Life .45. Big difference. I’ve been reading that Whole Life insurance ia a rip-off but I’m still confused. Can you guys please help me. Thanks a bunch! :
March 3rd, 2010 at 3:10 AM
You can clearly see Whole Life is already a ripoff by the fact is 3 times more expensive than term insurance. Its expensive because whole life insurance builds cash value and term insurance doesn’t. But here are some other reasons on how whole life is a ripoff:
1) Cash value gets a low rate of return of 1 to 3%. No cash value is accumulated in first 2 years.
2) If you wanted to take money out, you will be borrowing and paying loan interest of 8%
3) If your mom dies, death claim will be paid to the beneficiary, but all the cash value is kept by the insurance company.
With whole life insurance, you are paying for 2 parts (insurance and the cash value). However, you can only get one back. You can get the cash value if you cancel the policy, but surrender charges will apply and the insurance will cancel. You will get the death benefit if your mom dies, but lose the cash value.
With term insurance, it doesn’t build cash value. That’s why its very cheap. Term insurance provides coverage for a temporary amount of time. At the end of the term, you may renew it or cancel it. If you renew, premiums will be base on your mom’s current age, so it will be more expensive in the future. If you got your mom a 20 year level term and invested the difference of $42/month for the next 20 years, you can get about $24,903 with an 8% rate of return. Where can you get 8% or higher return? You can achieve that by investing in mutual funds. This part is going to be hard for you since no one at Colonial Penn can help you invest your money. I use Primerica Financial Services to help me invest my money. They help me find investments that meets my goals. I currently invest $400/month with them and I’m satisfied with their help. My investments has an average annual return of 12% in the past 30 years.
Anyway, in 20 years, is $24000 good enough to pay for funeral costs? Even if you put $42/month for 20 years away in a box (which gets 0% interest), you will have $10,080. I wouldn’t recommend you do that, but my point is that you should always keep life insurance and your savings separate and you can only achieve this by buying term insurance. If your mom dies during the term, you will get both the death benefit and all the money you saved. If she outlives the term, at least you will have $10,000 or more saved.
March 3rd, 2010 at 3:10 AM
I don’t know much about it but I do remember my husband who was a very smart and shrewd man saying" Whole life is a rip off" just like you did. He always went with term.
I’m sure someone here can give you the whys and wherefores.
Good luck
March 3rd, 2010 at 3:10 AM
If you are thinking about burial costs for a 48 year old woman it seems that those are more than "minor" problems. The rates quoted to you would be standard rates available to people in good health. You might suggest to the agent that you make a "trial application." This would let you know in advance how much of an extra premium would be required in your mother’s case - if insurance would be offered at all.
One word of warning. Make sure that your mother answers every health question truthfully. Insurance companies can, do and should contest claims made under policies issued under false pretenses.
March 3rd, 2010 at 3:10 AM
The purpose of a whole term policy is a long term investment with a built in savings plan. The longer you have the policy, the more it pays out. It is also more profitable for the insurance company. If your mom is going to be around for another 25 or 30 years, this would work.
Term insurance is cheaper because you are not investing in anything nor are you saving money. It’s a flat rate insurance that pays out fully at the time of death. Insurance companies do not make nearly as much on this type of policy. Personally, I’d go with the straight term insurance because it’s cheap and can provide the benefit you are seeking.
Funerals can be expensive. If your family insists on a full deal with casket and burial plot, procession, memorial, etc. you can expect to pay a lot of money ten thousand and up. Funeral homes sales will take advantage of your sorrow and guilt to get you to spend more. If you are vulnerable, then have another relative or friend negotiate the deal based on what you can reasonably afford.
Finally consider cremation as my family has always done. You can still have a wonderful memorial, and even a last view of the deceased for a little extra. You can have a decent ceremony for less than two thousand US dollars.
Also look into your bank or credit card company. some offer death insurance for as little as 5 bucks a month with a guarantee of 5000 upon death. I have one from my credit union.
March 3rd, 2010 at 3:10 AM
Looking for a term life insurance policy has just gotten a lot easier using the internet. You can very quickly go to various websites and get an online term life insurance quote from all of them. You can very quickly get an ideal term life insurance policy using the internet. The internet has a vast number of companies competing for your dollar by offering the best term life insurance policies online. You can ask for a quote receive it very quickly and not have to pay for this information.
If you are wise you would seek out several free quotes online. With all this information at your finger tips you can then select a policy that is ideal for you. Often companies offering online policies will respond with a no obligation quote within a day or so. In order to quickly and easily fill in the required questions it is an idea to have the answers ready at hand. Typical questions are your gender, age, medical history, occupation, hobbies, and do you smoke. The more these factors are are against you the higher will be your premium. If your employment is in a dangerous industry your premium will obviously be higher.
This is because the perceived level off risk to the insurance company will be much higher. If you are to get a term life insurance policy this quote is only locked in for a set time period. Your medical history will determine if you need to have a through medical. Your premiums will be higher if you don’t have a sound medical record. It is always of utmost importance to be truthful with any answers as you could negate your policy if you have been found to be not telling the truth.
It is very important you way up all these vital factors before settling on a final term life insurance policy.
http://generallifeinsurance.org/term-life-insurance-select-general-life-insurance-policy/