In a previous post about the Christian and Insurance, we looked at whether Life Insurance was prudent or showed a lack of faith in the life of a Christian. After concluding that purchasing life insurance was a wise choice, we will examine the nuts and bolts of the two main life insurance products available.
What is the Difference Between Whole Life Insurance and Term Life Insurance?
Term life insurance is very easy to understand. A term life insurance policy provides life coverage only (i.e. there is no investment aspect to the policy). You take out the policy for a given period of time (usually 1 to 30 years), and pay the monthly premiums that you agree to beforehand. You pay the same monthly payment for the entire length of the policy.
Here is an example:
I decide to take out a $750,000 term life insurance policy with XYZ Insurance. The length of the policy is 10 years. XYZ Insurance informs me that the premium payment is $31/month. If I die anytime in the next 10 years, XYZ Insurance will pay $750,000 to the named beneficiary (this will usually be the spouse or children). If I’m still alive after 10 years, the policy will be finished. I can then decide if I want to take out another policy or not.
Whole life insurance is a bit more complex. Whole life combines life coverage with investments. Because of the combination of insurance and investment, whole life insurance is usually much more expensive than term life insurance. There are three common types of whole life insurance: traditional, universal, and variable. For a beginners guide, knowing the intricacies of the three different types of whole life insurance is not essential. The general idea is that part of your monthly premium pays the life coverage and part goes toward some type of investment.
Reasons Why I Think Term Life Insurance Is A Better Option For 99.99% of Christians
- Whole life insurance is expensive! Most Christians of modest means cannot afford the much higher monthly premiums of whole vs term life insurance.
- Whole life insurance has high transactional fees. Not only are high fees involved with whole life insurance, but there are a myriad of different fees you have to pay! There are usually upfront commissions that can be as large as the entire first year of premiums. There are usually ongoing maintenance fees that are paid to the insurance salesman/company. All of these fees really start to add up! It’s difficult for the insured person to detect these fees as disclosure by the insurance salesman is usually lacking.
- Whole life insurance usually under performs other retirement saving options. This is not the post to exhaust other low fee retirement saving options, but it is worth noting that whole life insurance returns usually do not keep pace with other low cost alternatives.
The main point to keep in mind is that you are looking to purchase insurance, not investments. Term life insurance provides that coverage at a much lower monthly payment compared to whole life insurance. If you are a healthy person w/o many bad habits, term life insurance is downright cheap!
It is worth mentioning that whole life insurance can be a valuable tool if you have a very large net worth. But for the rest of us, term life insurance is a much wiser use of the Lord’s resources.
If you are interested in a resource to search for term life insurance rates, check out www.term4sale.com. I have no financial relationship with term4sale.com. It’s a great website that allows you to compare rates from different insurance companies after entering in some basic information.
Please be very cautious when someone is trying to sell you a whole life insurance policy. Once they get you in the sales meeting, they will use every selling tactic known to man to get you to purchase whole life insurance. Remember that we all have limited resources and want to use what God has entrusted to us in the wisest manner possible.
What has been your experience with purchasing life insurance? Did I leave any important details out between the differences between whole and term?