Whole life vs. term:
Term bests whole life only when it comes to price.
There’s a clear winner here
By Peter R. Magni, LUTCF
From 1940 to 1970, it was very com- mon for people to purchase whole life insurance. A policy could secure income for their family in case of an
untimely death and also help subsidize
their retirement planning. Term insurance
wasn’t very prevalent in those days.
Then, in 1981, the Tax Equity and Fis-
cal Responsibility Act (TEFRA) became
law, and many insurance companies and
banks became interest sensitive. People
started questioning why they would put
their money in permanent life insurance
products when they could put it in the
market and get rates of return at upwards
of 10 to 12 percent.
understand the value
of life insurance, they
don’t believe their life
insurance need is
quite as high as it
financial industry, people are trained to sell
term life insurance because the cost is lower. The problem is, even though many term
life insurance policies can be automatically converted to whole life without an
exam, people almost never do it because
they weren’t properly educated in the benefits of whole life insurance.
For example, in 20 years, when the
client’s term policy expires, she’ll have
to buy another term policy. However, at
that point, the cost will be much higher
because the client didn’t do a conversion
program from term to whole life earlier
on, therefore leveling whole life premiums. The client who buys term also runs
the risk of becoming uninsurable because
he will be closer to life expectancy and
could have developed health conditions.
As an industry, we need to take the
time to properly solve the life insurance