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Why Term is Better Than Whole Life Insurance

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Eric Stauffer is a former insurance agent and banker turned consumer advocate. His priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best...

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UPDATED: Nov 20, 2013

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For the vast majority of people, term life insurance is a much better choice than whole life insurance and I am going to show you why.

Term Life Insurance TruthPrior to writing this, I did some research on the topic to see what was readily available for consumers. I was shocked to see how much misinformation is prominently displayed on some of the top financial sites across the web. Nearly every major publication has somewhere in their life insurance categories, a complete guide to why people should buy whole life insurance.

And then it hit me. There is so much money to be made in the whole life game, that you have an entire industry going up against a few people with calculators who are actually doing the math. Not to mention that most of these guides were written by “insurance experts,” also known as insurance sales agents, who have everything to gain by spreading this misinformation.

Well I am one of those people with a calculator. And I am going to show you the math.

The Scenario

Let’s take a 30-year-old male, married, with a couple children. Perfect candidate for life insurance.

According to State Farm, he can get a 20-year term life insurance policy with a face value of $1,000,000 for $48 a month. This rate assumes no tobacco use and excellent health. The same 30-year-old male can get a whole life insurance policy for $915 a month.

So to recap:

  • 30-year-old male
  • Married with two children
  • Excellent health
  • $1,000,000 policy
    • Term – $48/month
    • Whole – $915/month

Of course the whole life premium looks very high compared to the term, but they are not the same products. To be fair, whole life doesn’t expire and there is a savings aspect that builds cash value over time. That means you can use some of that cash later in life, like money from a savings or retirement account. Just do not kid yourself and think that cash value is going to grow to anything sizable, because it won’t.

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Now for the Math

Insurance Math BreakthroughThis 30-year-old decides to go with term life insurance and invest the difference in premium between the two policies. That means each month he puts $48 into life insurance and $867 into an investment account. Effectively, he is paying the same amount as just buying the whole life policy, except he is saving and investing himself.

For many people that are unable to max out their 401ks and other retirement accounts, that is a great place to put these extra dollars. But for this example, it really does not matter.

For 20 years he invests $867 in a few different mutual funds and earns a reasonable return of 7%.

After 20 years, the kids are grown and out of the house. They are probably done or close to being finished with college. Hopefully there was actual retirement savings going on, and the house is probably getting close to being paid off.

What about the investment account he has been putting $867 a month into? It’s now worth over $450,000.

Now there is no life insurance. But for the vast majority of people in this situation, they would no longer need it. The kids are gone, the bills are getting paid off, retirement savings has been growing, and not to mention the nearly half a million dollars saved just from the difference in the whole life and term life insurance policy.

For argument sake, let’s say this guy just really wants to have another life insurance policy. Since the majority of people are still healthy enough to buy insurance at 50, he could buy another term policy. According to State Farm’s website, a reasonably healthy person (downgraded his health a bit) could buy another 20 year term policy for $212 a month. But there is a good chance that policy will cost more 20 years from now due to inflation, so we will double it and add a few to make it an even $500 per month.

So let’s do this again. Now this 50-year-old, reasonably healthy guy with no kids to raise still wants a $1 million policy that costs $500 a month. So he takes $500 and pays towards his term policy and puts the remaining $415 into the same investment account that is already worth over $450,000.

When this person turns 70, his term life insurance policy will expire and his investment account will be worth almost $2 million dollars.

So in this scenario, he never had less than $1,000,000 of life insurance until reaching the age of 70, at which point he had almost $2,000,000 saved just from investing the difference in the two premiums. And here is a little news flash, in those 40 years, the cash value of the whole life insurance policy would be a very small fraction of the face value, not even remotely close to the $2 million he saved by investing himself.

Why Whole Life is Sold So Aggressively

Whole Life Insurance SalesmanYou should know that life insurance agents often make close to 10x the commission from a whole life policy vs. a comparable term life policy. That is why they are so heavily pushed by a lot of agents. This doesn’t mean whole life insurance agents are bad, though. Many of them truly believe whole life is a better product, because they read the same marketing material produced by the insurance companies.

At the end of the day, for most people whole life insurance is a flat out rip off. Insurance companies and agents make a lot of money off of these policies, and that is why they are so heavily pushed. If you are being shoved into one of these expensive policies and are actually considering it, find a not-for-profit financial planner that charges by the hour (not commission) to review your personal financial situation. They can give you an honest opinion as an industry professional that has nothing to gain either way.


  • This is not one-size-fits-all, but it is a one-size-fits-most.
  • If you make hundreds of thousands of dollars a year, have millions in assets, and have all retirement vehicles maxed out, there may be a place in your portfolio for whole life insurance. For everyone else, there usually is not.
  • The rates of return listed above are not guaranteed. 7% is a reasonable rate of return for a well-balanced stock and bond investment portfolio based on over 100 years of stock market data.

About Eric Stauffer

Author: Eric StaufferI am a former insurance agent and banker turned consumer advocate. My priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best place to get it.


  1. As an agent contracted with Mutual of Omaha, I want to say this.

    Sadly, there are too many people in the world whom do not take their work seriously, and think the insurance industry is a quick way to make money, and nothing could be farther from the truth.

    I never present Whole Life policy options to anyone whom is healthy enough to buy a term, unless they want a permanent product right out of the gate, and then, I never show Guaranteed or express Whole Life, unless they specifically ask, for there are better options for tax free cash accumulation, so you can leverage your taxation at retirement.

    Years ago, Whole Life was the Flagship, but it’s not anymore!

    Understand, Guaranteed Products are mainly for those whom simply cannot be underwritten mainly for medical reasons, and are just too high of risk (but are still good products as a stand alone, because some coverage is always better than none).

    Insurance is about transferring risks folks.

    I tell people all the time don’t put off getting a life policy, especially since you can convert the risk class whilst the policy is still active in a term policy!

    I’m hearing a lot of noise and seeming facts not presented well.

    Mutual of Omaha is a solid company, and it is important to have a local agent, and that is where a lot has changed.

    Most policies allow a 30 day free look period, so use it if you are not certain, and you can always cancel any policy…

    but the real issue I’ am hearing is that a lot of people are poorly informed from the beginning from green pea hunters, and yes, that is bad, so only deal with an agent with a good track record, or ask to bring their area manager or general manager along with them if they are new, that is their job to help new agents help clients, and not become some hunter.

    One thing I can and will tell you all, everyone wants insurance when they can’t get it, so don’t blame a solid company, do your homework, ask questions, and if there are health issues, your options are limited.

    Overall, insurances are the smartest move anyone will make, so maybe fewer coffees and more insurance is the answer…

    spend your hard earned money wisely, protect yourself. If it looks like a fish and smells like a fish, it’s a fish!

  2. Hi Eric, I am 71 female non-smoker. I just converted my $150000 term life to a UL $133000 policy. Problem premium went from $119 to $697 month. Is there any 20-year term I could look into with Banner or other reputable co, I’m in good health and still work 38 hours week. Thank You.

    • Hi Karin,

      I would recommend finding a broker that can run multiple quotes with various insurance companies at the same time. 20 year term in your 70s probably wont be as cheap as your previous policies, but its worth a look.

      Start with a broker.

      Eric Stauffer

    • Hi Karin,

      Give me a call if you’d like. I’m a broker and can look around for you, but Eric is giving you a good idea of what to expect. Depending on why you want the insurance will help to figure what makes the most sense. It might make sense, for example, to do 30k as a guaranteed universal life to make sure there is something there for final expense even if you live to 95, but then there is also some in term to be less expensive but payout to your beneficiaries if you pass away during this next several working years.

      I broker with most major companies so if you’d like to get in touch here is my information [redacted]

      All the best,

  3. Hi Eric, I and my spouse are both 61 yrs. We have no health problems either, however, we are both smokers. That being said I was wondering about life insurance for us since our nest egg is small ( under a 100,000). However, our property is paid & we have low bills. I still work a small part one job. Any suggestions are very welcomed. Thanks, Judy

    • Hi Judy,

      The overall purpose of life insurance is often misunderstood by the general population, or misrepresented by salespeople. A good way to look at life insurance is to imagine removing one of you from the financial situation, and calculating what would happen. Does an income go away? Social Security? Pension? Is one of the spouses a primary care giver for someone, and that would need to be replaced with a service while the other spouse continues to work?

      If the result of this analysis is that the surviving spouse would be left in an incredibly difficult financial situation, then yes, life insurance should generally be looked into. If not (which can be the case at your age, depending on your situation) then it might not be needed at all.

      Eric Stauffer

  4. Is IUL of National Life a good product?

    • All IUL are pretty similar. Eric already mentions some detail on it. Generally, when we use permanent insurance in planning we use whole life instead, IUL has much less guarantees built into the contract and really the reason you use insurance is for the guarantees.

      Depending on why you are getting permanent insurance is whether you should actually get it or not. But if you are going to get it I would suggest whole life over IUL.

  5. Hello,

    Thanks for all the info! I am almost 42 years old & in good health. I currently have a 20-year term policy for $250,000 which I pay $35 per month for & will come to term in 5 years. An agent is trying to sell me another $1,000,000 universal life policy with terminal, chronic & critical illness riders, for which I would pay $11,700 per year for 15 years. I’d love any feedback. What do you think about this?

    • Hi Andrea,

      Yes, I can imagine they are trying to sell you a policy like that. Lets take a look at some quick math, and see what your options could be. I made a few assumptions based on the information you provided, but this should illustrate the point just fine.

      – Over the 15 years of paying for the universal life policy, you will have paid a total of $175,500, which breaks down to $975 per month.
      – A brand new $1,000,000 20 year term policy issued today should cost you around $65 per month.
      – The difference between the payments comes out to $910 per month.
      – In both scenarios, you would have $1,000,000 of life insurance for the next 20 years.

      At this point, your family would be protected for two more decades. In many cases, you could even add those riders to the term policy or buy them separately. Now lets take a look at what would happen if you took the difference between the policies and invested it.

      $910 invested per month at a rate of 7% annual growth. (Reasonable rate of return with properly invested long-term funds)

      – $475,000 at 62 years old – Your term policy has expired
      – $945,000 at 70 years old
      – $1,405,000 at 75 years old

      The universal life policy will come with a savings part that is accessible to you as it grows. It acts as an investment. Let me be clear – the return on these are almost always garbage compared to what a well-balanced portfolio invested on your own can return.

      A life insurance agent is a salesperson. They want you to buy the universal life policy because they make thousands of dollars in commission on it. They make a few hundred from selling you a term policy.

      There are situations where one of these policies might make sense, but I wouldn’t trust a salesperson to give me unbiased information.

      Eric Stauffer

  6. It amazes me when people actually compare insurance to investments. First, permanent insurance is correctly marketed as a form of savings. Savings accounts are a far cry from 7%.

    For death benefit needs, temporary ones warrant using term, permanent ones, permanent insurance.

    The tax savings and tax advantages provided via surrenders and loans or, annuitizing and receiving an exclusion ratio, in the event of longevity and the investments did not work as planned (shocking but it happens) is a huge benefit.

    Amazingly a product that actually provides cash flow for our loved ones, regardless of contingencies and is there for our care should we need it for our WHOLE LIFE exists. And is named ….?

    Finally, when one invests in a 401k, understand your investment partner owns a good portion of that number you think is your money balance. And your partner will decide how much your portion is worth when you take it out. Since we know we will die, why not have the proceeds of that unwanted, not recommended by the Eric’s who clearly do not understand life insurance, pay the taxes? Or during bad investment years where money is needed, would not a sufficient sized SAVINGS account that does not generate a tax seem like a good place to get money? If you deplete a good portion of those investments for long term care needs, do you owe it to your spouse to replace the loss? Know what you’re protecting. Make the right decision.

    • Hi Scott,

      There are certain financial situations where a whole life policy can make sense. I am not arguing that. In fact, I even state that at the bottom of the post.

      However, there is a reason why the only people who tout whole life policies as good options for the general public are agents and companies that make money off them. They are extremely lucrative for the people on the other side of the equation. Those profit margins don’t come out of thin air. They come from the spread between what the client pays, and what the client gets.

      There is certainly an argument about an average person’s ability to save for the future, and how these types of policies basically ensure that some of that happens. That is human behavior, and a different discussion. The fact remains that there are much better ways to invest and save your money, while at the same time providing life insurance protection.

      What I am advocating here is for clients to understand what they are getting. Too often, an individual or couple walk into a life insurance agent’s office looking for guidance. They are blind to the details, and often have no idea what they are getting into. What ends up happening is they walk out with a policy that costs hundreds of dollars a month because the agent made a lot more money, not because it was the best solution to their problem.

      They walk in thinking they are talking to an advisor that has their best interest in mind. Not realizing that they are actually talking to a salesperson. I know, because I was one.

      Eric Stauffer

      • “They walk in thinking they are talking to an advisor that has their best interest in mind. Not realizing that they are actually talking to a salesperson. I know, because I was one.”.

        I believe this says much about you, Eric. You were an “advisor/salesperson” who sold products to people which may have not been in their best interest. So now you write this blog as a way to “redeem” you conscious. I cringe to know who you worked with that encouraged you to “sell” in that way and it’s disgraceful that you agreed to “sell” that way.

        None of what you argue is based in facts. You throw around “too often…they are blind to the details and have no idea what they’re getting into…because the agent made a lot more money…” Based on WHAT statistic? Or is that just based on your experience the clients you worked with? Just because you used to sell based on what your compensation would be does not mean the majority of life insurance agents sell that way.

        Summarized, your issue, is NOT with Whole Life. Your issue is with the amount of compensation an advisor receives for using whole life.

        Let me ask you, if an attorney received compensation for representing a client in a legal matter…are they just a salesperson? Is the cardiologist that recommends a heart bypass with annual stress tests to a patient…are they just a salesperson? Is the dentist that recommends a root canal on a decaying tooth, are they just a salesperson? Is the investment advisor who manages a portfolio and suggests a specific investment to a client… Are they just a salesperson? Are all professionals highly compensated for their service and advice? Absolutely. Does that make everyone in their profession less trustworthy? Of course not. Are there some people in their profession who are not of the highest integrity and moral aptitude? Yes. But that doesn’t give you the right to demonize the integrity and moral of
        the individuals of an entire profession because of one bad person. If you have a problem, and there is a solution, do you care how much the person solving your problem is compensated as long as it is solved?

        And the reason that the people on here defending the purpose of whole life within financial planning are typically advisors who sell it, is because we know the POWER of this product. It is one of the most flexible and dependable financial assets anyone could own. When is the last time you found a mechanic or web designer or corporate executive studying the workings of life insurance? Never, because they don’t have the time. It’s not what they’re trained to do, just as I am not trained in their profession.

        This website, and you, are hardly experts in life insurance, just because you were once an agent.

        • Hi Lauren,

          I appreciate you taking the time to write out your opinion on this manner. While you make a number of claims about me personally that are far from accurate, I do understand how this post and the subsequent comment section can be viewed as an attack on life insurance agents that do put their clients needs before their own.

          The purpose of these discussions is to help the general public, which for the most part has absolutely no understanding of how these complicated financial products actually work, or fully comprehend that they are making a huge decision with large sums of money. Therefore, it is prudent to understand what is being sold, rather than blindly trusting an individual whose incentives do not necessarily align with their own. That is not true only in life insurance, but rather all walks of life.

          You give examples of attorneys and dentists. From my own experience I can draw multiple scenarios where someone in these professions gave advice that was not in my best interest, but rather their own. By identifying our nonalignment before agreeing, I was able to get additional opinions that verified they were giving me bad advice in order to make themselves money.

          You also talk about financial advisors. The financial advisor industry is one of the premier examples of unsuspecting people being taken advantage of for financial gain. There is literature everywhere outlining how your typical advisors that works for some of the largest banks are constantly putting clients into funds that are most profitable for the bank, churning their portfolios on a regular basis to capture additional fees, and charging incredibly large management fees that erode a lifetime’s worth of savings.

          One of the issues with the financial advisor industry is that many don’t even know they are doing it. They are trained from the beginning to see it the bank’s way, so they truly believe they are acting in their client’s best interest.

          There is certainly an argument that many individuals couldn’t do it better themselves, and that is undoubtedly true in some cases. However, it doesn’t excuse the fact that these services being provided can cost some people hundreds of thousands dollars over a lifetime, when a simple date-targeted Vanguard mutual fund would cost a fraction of that, and perform much better. Vilifying an individual for pointing out this dark side, and subsequent option that would leave an investor in a better position seems a bit harsh.

          My purpose here is to show individuals the dark side of one specific industry. Most industries have them, and this is one in the life insurance realm. It certainly doesn’t mean everyone participates, but to assume it doesn’t exist is an error.

          For the record – I have never sold a whole life insurance policy to a person that would have been better suited with a term policy, based on the criteria written in this post.

          Eric Stauffer

  7. Eric, I’ve been told (by an agent) that I am a perfect candidate for Whole Life if I intend on taking out a loan. I’m 49, healthy (she stated twice, I need to be tip top). How long would I have to pay into a 500k whole life in order to take out 30k?

    I see roughly 90k a year, have 27k debt, am not struggling, and living a great life SINGLE. I would take a personal loan, but I’m offered 25k at 20 something percent. I’m not interested in that.

    Thanks for your advice and great information you push out………….


    • Hi Noa,

      It is really tough to give personal advice, when I don’t know the scope of your situation.

      My initial gut feeling based on the limited info you have presented says you are getting swindled by a whole life insurance agent who stands to make a lot of money by selling you this policy. Personally, I think whole life should be reserved for specific situations, and a single person hoping to get a personal loan doesn’t sound like one of them.

      The policy itself will be incredibly expensive, so your monthly premiums will probably dwarf any additional interest you would be paying on a 20% loan (which is also bad).

      I would talk to a local financial planner that is paid via direct fees, and not commission. It feels like you might be getting swindled here, but I can’t be sure with the info provided.

      Eric Stauffer

      • Thank you, Eric, for responding …. I won’t be doing it.


      • Hi Eric, I’m confused on this whole business.. So is a financial planner who I should talk to about investment and just go with a term life insurance for my children. Right now I have whole life insurance with Penn Mutual …I’m age 60 now and was diagnosed 4 years ago with breast cancer. I need to have a good life insurance in place for my two sons who are only 18 and 15. I don’t really have any savings and want to leave them money for a good head start. So do you have any advice for me? And which company is good for term insurance?

        • Hi Deb,

          I would recommend finding a fee-based financial advisor that doesn’t work for a bank (they are salespeople). You want someone that can look at your entire situation and give you the best advice.

          Additionally, do not cancel your whole life policy before speaking with someone, because you may find it hard to get insurance going forward given your diagnosis four years ago.

          Make sure the person you decide to go with can help you with your overall estate planning.

          Eric Stauffer

        • Deb,

          If you want to leave your children money, generally one of the most efficient ways to do that is through life insurance. If you already have the policy in force, and your goal is to leave money to your children, you may want to very seriously consider keeping the policy.
          If you are still making payments on the policy and that is a hardship or you want to do something else with your money then you can usually do what is called a “paid-up policy”, where you no longer have to pay premiums and your death benefit is just locked in at whatever amount you’ve earned so far through your premium payments already.

  8. I know this post is old, but I think Eric is spot on based on my experience. At age 31 I was sold a Whole Life policy with $100K coverage with a very reputable company in Northwestern Mutual. The policy cost me $126/month and was shown the charts that since I was investing early like other annuities at a reasonable rate of return the coverage would grow to between $750K-$1M by age 70. After about 10 years and $15K of premiums my value was around $3K. I was also told that after 6 or 7 years my interest could pay the premiums and obviously my value wouldn’t go up but my coverage would stay the same and this wasn’t true either. They blamed it on the market, but my 401K and other investments had reasonable returns during this time so not a wise investment in my opinion. At 41 I got a term policy of $1M for 30 years at $106/month, which if something happens would protect my family much better. At 71 it will expire and have no value, but I won’t have a need for Life insurance at that point and my other investments will cover retirement. A lot of people will say you need a mix of Term and Whole, but I agree with Eric that you need Term and handle your investments via 401K/Roth/IRA etc.

    • What most people don’t realize is only about 5% of term policies ever have a claim, majority of people outlive their term coverage (life insurance companies as a whole). That means that the insurance company wins 95% of the time when dealing with term coverage. With whole life, as long as the policy is designed right and you pay your premiums, you will get way more out than what you paid in, but not all companies are the same. One other huge perk is the death benefit dumps out to your loved ones 100% tax-free. If you have $300k left in a 401k, it will be taxed at about 25-30% before you loved ones get a penny of it.
      Term is great for IF you die unexpectedly and does protect your family.
      Whole is for WHEN you die, and is a tax-smart way to pass money from one generation to the next.
      Having a blend of both term and whole along with a sound portfolio is the key to a comfortable retirement!!!

  9. I am 50. My 500K term policy is 790 now and will be 3800 when I am 70. I have been recently diagnosed with cancer and treated. I expect no loss of life expectancy but have no expectation that I am “insurable.” Therefore, if I want insurance after that is reasonable after65 or 70, I need to convert to whole life (no medical exam). Premium is 10K/yr. It is with Guardian and If I look at the charts, in 20 years, guaranteed, the policy will be worth 179,949 with death benefit of 504,455. That means it is only 20K short of what I put in plus the insurance benefit. They offer a dividend as well and assuming current rates, the value would be 263,681 (63K above what I put in), with a death benefit of 645,475 (and I could reduce that to pay premium.

    So do my health issue make a difference here? I don’t think it will shorten life expectancy, but I can’t get any more insurance unless I convert. I know you say 7% is reasonable… but both of my percentage based financial advisors have lagged that significantly over the past years (I fired one and then hired the next who also got me about 3 percent at max).

    Finally, unfortunately , my 55 year old husband has the same problem. Cancer diagnosis. He should be fine now that he is done treatment. He has 4 million in level term that will run out when he is 63 or 64. He unfortunately doesn’t have Guardian (Banner and AIG). The banner will only change it to a Universal product. The AIG seems to have whole life that isn’t really permanent because it runs out in your 70s (can’t explain that). Does he convert some of it just because that is the only way to get more insurance? Or should we just get an s&P 500 index fund?

    Thanks for your help with this somewhat complicated but probably common issue (lots of cancer out there in younger people).

    • Hi Lili,

      Its tough to give a definitive recommendation over the internet, so I can talk in generalities.

      In general, you will have a very hard time finding substantial life insurance in your 70’s. From an insurance company’s perspective, it is almost a guaranteed loss unless there are huge premiums being paid. The reason they are willing to convert previous policies is they have captured a large amount of premiums over decades, especially when the dollars were worth more in the past (due to inflation).

      Without being able to see your entire portfolio, I can’t recommend what you should do. If it were me, I would consider investing as much as possible in the mean time, since there is still 10 to 15 years of life insurance coverage at the current premiums. My goal would be to become financially stable by the time the policies expire.

      Eric Stauffer

    • Sorry to read about your diagnosis. Check your Guardian policy to see if a “waiver of premium” was added to your term policy. If you are disabled, Guardian will waive your premiums until you recover. Also, just because you are diagnosed with cancer, it does not make you uninsurable for the rest of your life. Life insurance has a 5 year wait period for cancer. So if you’ve been cancer-free, it’s likely you can qualify again pending no other health issues arise in the meantime.

  10. Eric, Thanks for an informative article — I appreciate your highlighting the financial incentive behind the Whole Life recommendations.

    What is your opinion on the so-called Hybrid Whole Life policies, which combine Whole Life insurance with Long-term Care riders? I’ve heard about these from financial advisers at both my bank and brokerage firm. I’m interested in them because, while I do have sufficient savings to retire comfortably, I have been seeing the impact that LT care can have on finances.

    These policies seem to provide a “perfect” combination of LT Care insurance and the ability to recoup the premiums either by the death benefit or taking a “loan” against the policy. Of course, anything that seems “perfect” can also be “too good to be true”.

    For background, I’m 59 with a 46 yr old spouse.

    Thanks again for your insight!

    • Hi Mike,

      My position on whole life insurance, as stated above, is pretty even across the board. Without knowing the ins and outs of your personal financial situation, its hard to give a specific recommendation one way or another.

      My recommendation is typically to find a local FEE-BASED financial planner that is not commissioned to sell you anything. They will generally collect a fee directly from you, and they can go over your entire portfolio and insurance needs.

      The issue with a lot of these permanent life insurance products is they are incredibly expensive. There are certain situations in estate planning where they make sense, but it takes an expert with access to all your information to make that determination.

      Remember – if the person attempting to convince you to purchase something stands to benefit, it pays to get an outside opinion.

      Eric Stauffer

      • If I can put it to you this way, insurance companies are pulling out of the long term care market. There are only a handful left. When companies, that specialize in handling risk, don’t want the risk of long term care care on their book of business, how is the average individual supposed to plan for it? With the average cost per day at $250, it can easily erode your wealth, and affect retirement income for your younger spouse. It is worth looking into, but needs to be coordinated with your overall financial plan and with the help of a financial professional.

  11. I bought an universal life index life insurance from Allianz last year which I have to pay premium for 10 years, $10,000 each year ( builds cash value but no free riders). My friend recentaly introduced me to National life group UL, which also builds up cash value but includes 5 free riders. I am so attempted to change to it, because it has chronic illness riders and terminal illness riders as well. Since we don’t have kids, I am more interested in having chronic illness riders. But my insurance agent says I can borrow out money from Allianz when it builds cash value later on. I don’t know if I should change to National life group and loose my paid premium of $10,000 and my husband already paid his premium $ 20,000 for his first year? Or just hang on to our Allianze? I’ve read some reviews of UL, now I don’t know either these products are good to have ? Bottom line I just want to have money for chronic illness or long term care if needed in the future and our life insurance benefit the mate when one survives the other. What’s your opinions on this?

    • Hi Jenny,

      Universal life insurance is a very complicated product, and unfortunately is often pushed by agents because of their high commission payouts. It doesn’t mean they are always bad, just that there are sometimes other options that may be better.

      What I would recommend is sitting down with a fee-based financial planner to go over your entire situation. They can give you a customized report with their recommendations.

      DO NOT go to a financial planner that sells life insurance or other investment products. Go to someone that you pay to give you advice. Otherwise, they may be incentived to put you into their products.

      Eric Stauffer

  12. Hi I am 68 years old and I’m trying to get my policies together. I have three policies, one whole life for $6500, and one for $10,000, then I have a term life for $12,000. I need help in deciding what to keep and what to drop, or what do I need to add on to cover myself.

    • Hi Gwen,

      Without knowing your entire financial situation, its hard to make a recommendation.

      I would, however, recommend finding a local financial planner that charges by the hour and sitting down with them. Avoid sales agents disguised as a financial planner. They will typically work for a company that sells insurance and/or investments.

      Eric Stauffer

  13. Question I am 38 years of age with a 2 year old child. Single parent living off worker compensation at a 1200 a month. What should I do to invest for my child’s future. I already have a whole life insurance for $20,000 I pay annually $369. Plus $40 dollars for my sons whole life policy for $5000 till he is 21 and he can pay himself afterwards. Should I invest in term for his college fund? If so who do you recommend? And regarding my retirement I only have $22000 in retirement funds as I borrowed $13,110 to live off in retirement loans which is earning 7% percent interest which I am trying to pay off.
    I have to pay this back in taxes this year in city, state and federal. Stressors are real as I worked 25 years. Ten in private schools and 15 years for the city and left permanent disable. What most I work on improving on financially ? I also have a 30,000 credit debit all earning interest

    • Hi Grace,

      I can imagine it is pretty tough to make ends meet on $1200 a month. Since I am not a financial planner by trade, and do not know your situation personally, I can only give you general advice.

      First, I am not a fan of whole life insurance for most people. It is incredibly expensive, and the payoff is marginal. If your disability is not life threatening and doesn’t disqualify you from a new life insurance policy, you may want to shop for a term policy. You could probably get much more coverage for a significant reduction in premiums.

      Second, I am also not a fan of kids life insurance. The purpose of life insurance is to provide for others should someone die. Unless a child is carrying part of the financial load, there isn’t really a big benefit to having a policy. Again, the payouts on whole life policies are marginal, at best. The same money invested in college or a small brokerage account can often yield much better returns.

      I wish you luck.

      Eric Stauffer

  14. Does an advisor really receive greater monetary compensation from selling a client whole life insurance? It depends what it is being compared to.
    On the high side of commission scales, I will assume that it is 100% of first year premium. The commissions that agent would earn on whole life would be $10980. Is that a lot of money? Yes!
    Now, let’s say that on the other hand, an advisor recommends a “buy term and invest the difference” strategy. The advisor would make $546 off of the term policy. Based off of “investing the difference” @ this linear 7% ROR over the next 20 years, and earning a 1% Assets Under Management fee, the advisor would earn $36,495 off of three invested money, a littleover $37000.
    Why would an advisor make a recommendation to have whole life when they could profit 70% more by investing those same dollars? Could it be that it is in the best interest of the client? Maybe. But it definitely isn’t in the best interest of the advisor.

    • Hi Lauren,

      Good point. While your math is sound, there are a few additional pieces that can play a part.

      1. Many people that sell whole life insurance are not financial advisors that can sell securities and other investments.

      2. The old ‘Bird in the Hand’ can play a big role because to many, $10k today is better than $37k (potentially) over a lifetime.

      3. Investing the $10k they made today themselves would yield substantially more than the $37k they could potentially make.

      Eric Stauffer

  15. Eric,

    My main disagreement with your premise is that you’re making an “apples to apples” type comparison of term and whole life, where as in my experience it’s more an apples and oranges issue.

    It all boils down to what is the potential death benefit to be used for.

    Most people who criticize whole life are misapplying its designed purpose: to provide an immediate payout to the designated beneficiary to offset FINAL expenses.

    Therefore, in most instances, $15,000 to $30,000 in Whole Life is more than sufficient. Maybe $50,000 for someone in there 20’s or 30’s who wants to counter inflation, but that is more the exception than the rule.

    A high face value term policy (as in your example) is a fantastic choice for someone younger than retirement age with a family who relies on their income and additional liabilities (i.e. outstanding debts, mortgage, etc.). But after that term expires, the need for that large amount is no longer there.

    A more fair comparison would be:

    Person A: $1,000,000 term at 30 years of age at $48/month for 20 years, followed by same term at 50 for $212/month. Keep in mind that will expire at 70, so if they live past age 70, the only “death benefit” they’d have is whatever outside investing they did, and they have nothing to show for the over $60,000 they’ve paid for term.

    Person B: $1,000,000 term at age 30 at $48/month for 20 years PLUS $30,000 in Whole Life purchased at the same time. Healthy non-smoking 30 year old would be about $50/month. So they’ll be paying about $100/month for 20 years, and then $50/month thereafter, as that whole life premium is locked in.

    So say both these people passed away at age 75.

    Person A would have no immediate benefit outside of any investments or liquid savings, and they would have paid almost $63,000 over the life of both term policies.

    Person B would have a $30,000 death benefit, paid less than $40,000 over the 45 years of coverage, AND would have had over $150 left in their pocket each month for their last 25 years compared to Person A, as they were still only paying $50/month versus $212/month.

    Again, this is looking at it as it should be: strictly from a cost/benefit standpoint and not an investment standpoint. With all the animus you directed at insurance agents, I feel a lot of the confusion and misrepresentation of life insurance actually comes from people with a finance background trying to twist them into an ill-advised investment vehicle.

    Insurance is insurance. It’s for asset and family protection. That’s it,

    • Hi Ryan,

      Thank you for taking the time to respond.

      In your example, Person B would spend $27,000 over their lifetime in exchange for a $30,000 death benefit at the age of 75.

      If that same person invested the $50 a month from the age of 30, they would probably have somewhere in the ballpark of $30,000 after their 20 year term expired. If they continued to invest that $50 a month until they died at 75, they would have $250,000.

      Eric Stauffer

    • I agree with Lauren,
      The risk is going to be there one way or another. A person doesn’t know if they will pass in their sleep, behind the wheel of a car or in a nursing home. All you can do is plan for the “what if”. The stand-alone policies will do a good job and can be designed to fit most peoples budget, also, if both husband and wife get an LTC policy at the same time, most carriers will give a 15-20% discount. But if you pass away in your sleep in your own home, you could have paid on a stand alone for many years and not get anything out of it. From my bit of research, the Hybrid style allows you to have a whole life policy that you can advance a portion of the death benefit (around 85-90%) to be used for care. Now what most people don’t realize is, the care can be in your own home, assisted living or a full care nursing home. For example, If you have a $200k policy and you use $100k for LTC and pass away, your family will still get the $100k left over. I do agree that the Whole life can be pricey and most companies that offer this style require a $125-$150k minimum of coverage to obtain the Hybrid style. I guess what I really like is you know either you or your family will get something out of it, instead of paying on something for 2 months or 20 years and it never gets used. It really comes down to personal preference.

  16. I happened to take college classes in Life Insurance and Estate Planning, and have learned more since.

    I am by no means an expert, as Eric is striving to be. His story centers on an age old comparison that has been true for 50 years or more.

    However, there are caveats. There are cases when some form of whole life does make sense (btw Universal Life is a type of Whole Life).

    For instance, very few of us actually “invest the difference”.

    For those who tend to spend, rather than invest, whole life can be a better option since:
    1. the low interest rate offered by whole life is greater than 0%
    2. borrowing from life insurance is harder to justify when funding unnecessary purchases
    3. it provides an asset than can be borrowed against in case of true emergencies

    One other VERY important detail, is BUY guaranteed life insurance when you are young and healthy. A simple detail like your doctor giving you an anti-depressant to “take the edge off” and you will find the only life insurance available to you as an individual will be VERY expensive.

    • Hi Brad,

      Thank you for taking the time to reply.

      Your comment brings up a good point, in that many people have difficultly with saving for retirement on their own (which is why auto-enrolling employees in 401ks is becoming popular). While this in fact is true, that is more of a psychological discussion.

      The true purpose of this post is to combat the life insurance agents out there that spew misinformation in an effort to sell higher commission products.

      Whether you have the discipline to save on your own will be up to each individual. But it doesn’t change the math.

      Thanks again for your insight.

      Eric Stauffer

      • This article is misleading and doesn’t tell the full story. Also there are participating whole life policies that grow cash value, anddeath benefit. In most scenarios participating life insurance will offer more protection and cash value with less risk then the article’s suggested buy term and invest the rest scenario. I can prove it I have access to these products and I have the nbers to back it up

        • Hi Michael,

          Thank you for taking the time to comment.

          The overwhelming consensus from financial planners that do not have any incentive to sell life insurance agree with the premise of this article.

          Unless insurance companies have guaranteed access to investment opportunities that can grow at a rate higher than the market average, cover their costs, and make extra so they can profit, the numbers just do not work out.

          Eric Stauffer

  17. I was checking on Knights of Columbus Life insurance policies to see if there were any complaints and came across your messages. I signed contract today called a modified Endowment Contract so my children will not have to pay taxes on the money when I die. I am to give the agent $100,000 check the day after the holiday. Am I stuck with this now. I am having second thoughts and wondered if I should have had a lawyer look over it. I am supposed to be guaranteed $128,000 upon death. I just turned 80 years old and I am in very good health. Taxes would have to be paid only if I made a cash withdrawal. Need your valued opinion please.

    Anxious to hear your advice.
    Thank you.

    • Hi Kelly,

      I would absolutely speak with an attorney that can give you personalized advice. These matters can be very complicated, and policies can be written in a way that isn’t easy to understand outside the industry. Its always better to get a trusted third party that can go over the specific details of your scenario.

      Eric Stauffer

  18. Good Dialogue.

    What are your thoughts on Indexed univeral life insurance? You only mentioned Whole and Term, but nothing on UL. From what I know Indexed Universal Life Insurance comes in different forms from the basic fixed-rate policy to variable models that allow the policy holder to select various equity accounts in which they can invest. This type of policy gives the owner the opportunity to allocate cash value amounts to either a fixed account or an equity index account.

    I believe the different products serves different purposes and benefits, it depends on what the policy owner wants. The agents all belief that his or her way is best. I believe that IULs offer a more compelling story and therefore should be crowned heavyweight champions for those wanting to build wealth without the risk of the market.

    • Hi Meagan,

      Thanks for taking the time to comment.

      In my opinion, indexed universal life insurance is not a great place to put your money either. The sales pitch is often excellent growth without the market risk, which anyone in the financial services industry knows is not the case. You really can’t have one without the other, especially with interest rates where they are today.

      The bottom line is insurance companies have to make money. So bundling life insurance and investments doesn’t magically create a larger return for the consumer. The insurance company needs to get their take somewhere, and they certainly will.

      There are certainly places where these types of products can fit (estate and tax planning situations) but for the vast majority of people, investing and insurance should be separate.

      Eric Stauffer

  19. Eric, thank you for this article, I’ve been doing the same analysis for whole life and term 80 plans. I’m glad that you factored in inflation. I assumed a 3% inflation for all my analysis.

    What I have found for whole life, is that if you make more than 2% – 4.5% on your investments, which should be terribly easy, you are better off getting term and investing. All of my analysis was based on being insured until age 65. It also assumed that you would convert your Whole Life into an annuity and forfeit the insurance value at age 65. Otherwise you have to borrow against a whole life and you are losing 4-8% of your borrowed value in interest every year, which is not feasible when using this for income for over 6 years.

    For Term 80, you are better of keeping term up until 70. If you really want to keep going to 80 the insurance can go either way. This analysis assumes that you are able to re-buy insurance to extend and that you do so at the soonest possible to lock in a 30 year rate up to the age you would like to stop insuring (Ex: If you want to go to 80, you get in a 30 year term at 50). However it also factors in that you always have a 30 yr policy so that you can give yourself extra “insurance” if you are unable to re-buy (ex: if you are 30 now and want to go to 80 you opt for a slightly more expensive 30 year term then cancel is at 50 when you lock in another 30 year term. This way you will still be insured to 60 if your now uninsurable).

    The only advantage to term 80 is that you don’t have to re-buy and thus you are not at any risk of not being insurable again later down the road.

  20. Thank you so very much Eric for posting this article!!! After 8 years of paying between $800 and $600 a month for child support – it’s going to be finished in June – my husband and I are going to get life insurance for ourselves. I was an insurance agent MANY moons ago…however…it was for auto-homeowners and commercial…therefore had little knowledge of life insurance. I wanted to check out the facts and get quotes from other companies before speaking with our State Farm agent…I am VERY glad I did!!!!! Thank you again for this article!!!! God Bless!!!!
    Mrs. Regina Shay

  21. Great article! This helps me, as I’m currently looking into which type to get again, and I fit in your scenario of the almost 50 year old looking for a second term.


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