Who Needs Whole Life Insurance?

by Galia Gichon on February 5, 2008

I have been in the financial services industry for almost 14 years and it still took me years before I understood the difference between whole life insurance and term insurance and who really needs each. One of the issues I feel strongly about with financial education is that many people are sold financial investments they don’t necessarily need, like Whole Life Insurance.

To define Term versus Whole Life Insurance; Term Life Insurance is life insurance that covers a specific time period (i.e. 20 years) and does not have a savings component. Term Life Insurance is much cheaper than Whole Life (also called Universal life insurance). Whole Life Insurance offers a savings component combined with actual life insurance for a specific time period.

Some thoughts to consider:
• If you just need life insurance because you have a family with dependents, stick with term life insurance. Whole life insurance is probably too expensive for your actual needs.
• Look at your entire financial checkup: are you maximizing your retirement plan at work and contributing to your IRAs? If so, and you still have money left over to save or invest, then you can consider whole life insurance for additional tax-deferred savings. The rest of you should just buy term life insurance.
• The typical fees with whole life insurance are between 5% and 7% between commissions and sales charges. Therefore, if you are promised annual returns of 8%, it could be as little as 1% after fees. Your money would be better in a money market account!

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