Term vs. Whole Life Insurance: An Honest Comparison
The life insurance industry has a financial incentive to sell you expensive whole life policies. Here's what the unbiased math actually shows.
Financial Writer
Term Life Insurance
Term life provides death benefit coverage for a fixed period (10, 20, or 30 years) at a fixed premium. A healthy 35-year-old can get $500,000 in 20-year term coverage for $25–$35/month. It's pure insurance — no cash value, no investment component.
Whole Life Insurance
Whole life provides permanent coverage with a cash value component that grows tax-deferred. The catch: premiums are 5–15x higher than term for the same death benefit. The "investment" component grows slowly and comes with high fees.
The Math: "Buy Term and Invest the Difference"
If whole life costs $400/month and term costs $30/month, investing the $370 difference in a low-cost index fund at 7% average annual return produces far more wealth than the cash value of most whole life policies.
When Whole Life Makes Sense
For high-net-worth individuals using it as an estate planning tool or for people who have maxed all other tax-advantaged accounts. For the vast majority of people, term + invest the difference wins.
Comments
No comments yet. Be the first to leave one!