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The Debate over Whole Life Insurance and Term Insurance

The Debate for Whole Life Insurance and Term Insurance are ever going.

First and foremost, let’s understand the simple definition for each of them, then what’s the debate all about and my opinions on how to go about choosing which is the best choice for you…

Whole Life Insurance

A whole life insurance is normally packaged as a “retirement” plan and in a comprehensive manner whereby your premium is being used to cover yourself in your lifetime against:

  • Death
  • Total and Permanent Disability
  • Critical Illnesses
  • Significant Cash value over the long run
  • or other enhancements like Annuity conversion, Accidental Death coverage and more…

The new trend to note for whole life insurance is that you need only to pay your premiums in limited years now and not for a lifetime (this is what most people will dread).

Term Insurance

A term insurance is what we normally refer to as “a piece of mind” protection plan which you pay a premium to cover yourself against:

  • Death
  • Total and Permanent Disability
  • Some insurance companies offer Critical Illnesses coverage as part of the plan or can be included in the plan as a rider
  • No cash or surrender value at the end of the term

The Universal Debate

So there’s the big debate whereby which is the best choice for most people – whole life or term insurance?

And What They Are Arguing About:

  • You have to pay a lot of premiums (3 or 5 times more as compared to term insurance) for whole life insurance with the similar coverage
  • The break-even period is taking way too long for whole life insurance – normally on the average of 17 – 20 years later.
  • The returns are insignificant for whole life insurance and therefore one should adopt the principle of “buy term and invest the difference”

My Views and My Opinions:

If you did a search online on this topic, you will realize that many will recommend you to take up a whole life insurance if you are willing to commit to at least 20 years or more, else take up a term insurance and invest the difference. I do have a different personal view on this “invest the difference” which you can read more here.

My view, therefore, on which is the best choice for you will depend on your life stages and how you live your life or in some sense a combination of both choices.

Why is that so? Let’s understand a few things.

Premiums for whole life insurance are normally the lowest when it’s for infants and therefore a good timing to get started on this program with a certain high coverage as a so-called “gift” for the child. With the choice of limited premium terms now, parents are in a much better position to manage the premiums, together, with the cost of raising up a child for the next 20 years.

Next, with the existence of certain riders like helping to waive off future premiums needed, should anything happen to the parents, the whole life plan for the child is actually being taken care of.

For parents wise – liabilities (fixed term) like taking care of their dependents, mortgage loans, credit cards or even to consider their children education fees – all these can then be taken care of by taking up a term insurance. Any spare cash will go into savings and investments.

What you can see in this planning is actually what I considered, a good life planning cycle for today’s and future world -> the child’s future protection or retirement planning is actually taken care of, partly, by the parents as the child is growing up. And when the child is fully dependent, he can set aside more money into intense investment and savings for his retirement, goals and new family.

Any liabilities can always be covered by taking up a term insurance. Therefore the principle of “buy term and invest the difference” works well now for his retirement and lifestyle. This approach can be used to take care of the child’s new family and so forth. You can also notice that in terms of protection planning, savings and investing – they are well in placed.

A side note: if you are reading this – as a working adult, not having a family yet but are in between having a bit of whole life insurance and a bit of savings here and there.

My opinion is that if your whole life insurance, be it limited terms or paying till you’re really old, is already having some cash/surrender values, do continue to stick to the plan. You will just need to re-assess your life plan and consider some term, endowment and investment plans. This will be further elaborated in my future posts.

So with this post, I hope I have provided some insights in better understanding of how whole life and term insurance can help in your financial planning.

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