Should You Buy Term or Whole Life Insurance?

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If something happens to you, you don’t want your spouse or your children worrying about how to make ends meet. That’s why life insurance matters. A good policy guarantees your family will have money to pay the bills and time to grieve if an accident or illness happens.

But what most people don’t realize is that insurance doesn’t have to cost an arm and a leg. Research shows that 64% of policyholders pay thousands more for life insurance than they have to each year. What are they doing wrong? They’re buying the wrong kind of insurance.

So how do you know which type of life insurance is the right one? Let’s take a look at two of the most common kinds—whole life and term—and find out.

Whole Life Insurance

A lot of people flock to whole life insurance because these policies often package insurance and savings together. But that’s one of the worst things you can do. The monthly cost is expensive, the investment returns are pitiful (they don’t even keep up with inflation), and your money disappears into big fees and commissions.

And to add insult to injury, your family will only receive the face value of your policy if something happens to you. They won’t get any of the money you “invested.”

Term Life Insurance

On the other hand, term life insurance gives you the best mix of cost and coverage. A healthy, working mom in her mid-30s earning $40,000 a year can buy a $450,000 term policy for about $32 a month. But if she wanted to buy the same policy through whole life, it would cost her closer to $400 a month. That’s a $368 difference!

With term life insurance, you’re paying so much less per month, which means you can invest the difference in a good growth stock mutual fund that you control. This is important: You always want to keep your insurance as insurance and investing as investing. Say you invest just $300 of that extra $368 a month. You could retire with $650,000–970,000 in 30 years. Or you could pay off a $200,000, 30-year mortgage in 19 years and save more than $58,000 in the process—just by applying an extra $300 to your monthly payment.

It’s pretty easy to see that term life insurance is the winner. And as stewards of God’s resources, it’s important we do our homework before spending money. We don’t want to throw our money away on resources that don’t honor our families (Proverbs 13:22) or provide a good return (Matthew 25:14–30).

If you haven’t already purchased life insurance, you want to make sure you buy 10–12 times your income in term insurance coverage. Making sure you have plenty of coverage will allow your family to live comfortably until they figure out what to do next.

And if you have a whole life policy, trade it in for term life. But make sure you have your new term policy in place before you cut the cord to your whole life coverage. If something were to come up that made you uninsurable, the last thing you would want is to be stranded without any coverage at all.

money | @ChrisBrownOnAir