Should I get Whole Life, Universal Life, or Term Life Insurance?

Firstly, some education: Whole Life does not expire, and stays with you until death.  It is a type of Permanent life insurance.

Term Life expires after a certain period of time – usually after 10, 20, or 30 years in length.  It is known as Temporary life insurance.

Universal Life is another type of Permanent Life insurance policy, which often has lower premiums and/or higher potential for cash value growth than whole life.  It our most common recommendation for Permanent Life Insurance.  Contact Us for more details on permanent Universal Life insurance.

The great thing about each of these options is that they do not go up in price, your price stays locked in for the entire term.  This is different than other insurances you are probably accustomed to such as health insurance or car insurance, which often have large rate increases over time.

To recap:

Term Life = Temporary (usually 10, 20, or 30 years) – price does not go up during the entire term length

Whole Life and Universal Life = Permanent (to age 121) – price does not go up throughout the life of the policy

Now that we have that established…

Every circumstance has a different answer as to which type of life insurance you should own (and how much) – but some circumstances are more common than others.  Here are multiple examples of how much life insurance a person should purchase based on common situations:

Life Insurance Example 1 – 40 year old Female, not married, with 2 children
Life Insurance Example 2 – 63 year old Male, married, children are over age 30, debt-free.  Non-tobacco user.
Life Insurance Example 3 – 35 year old Male, married, recently had second child.

Life Insurance Example One:

40 year old Female, not married, with 2 children, ages 14 & 10.

If this person died in the next 20 years (by age 60), her children might be in their teens or twenties at this time.  They may be in school or struggling to figure out their own way, possibly with college debt.   So a 20 year term policy would be a good idea, as it will stay with her until age 60, and give protection up to the kids’ ages of 30 and 34.  A $500,000 policy that would last 20 years would cost around $30/month.  But!…. she might say…. “I want longer coverage – I’m not planning on dying by age 60!”  This is what permanent coverage is for.  However, a permanent policy for $500,000 is about $250/month (or more).  Since she probably won’t need such a large amount of insurance once her kids are grown and on their feet, she might want to scale that back a bit.  A $100,000 permanent policy would be about $55/month. 

So in this circumstance, a good starting place would be to get a $500,000 20 year term life policy, AND a smaller, $100,000 permanent life policy.  It would be about $85/month for both of these policies combined.  This is a more affordable and practical option than just choosing one or the other – term or permanent.  This combination would give her $600,000 of coverage until age 60, and then $100,000 until age 121.  At age 60 her total price would drop down from $85/month to $55/month, as the $500,000 policy would expire at that time.

Life Insurance Example Two:

63 year old Male, married, children are over age 30, debt-free.  Non-tobacco user.

This person may be looking at Permanent life insurance.  The question is the amount of insurance he’ll want to purchase.  Depending on the man’s health, a $100,000 permanent Universal Life Insurance policy would cost between $160 – $250 /month.  A $100,000 permanent Whole Life policy would cost between $380 – $500 /month depending on health (over double the price!).  Based on this example, perhaps you can see why we would recommend Universal Life instead of Whole life.  The prices on both of these policies do not increase, and stay level over time.

For comparison, if this person is wanting to get a $100,000 Term Life insurance policy – a 10-year policy would cost $50 – $80/month, a 15-year policy would cost $70-$100 /month, or a 20-year term policy would cost $90 – $150 /month.  This range in pricing is dependent on his health.  These are cheaper options than permanent life insurance, but there is a risk that he may “outlive” his policy if it is a temporary one.  He can eliminate this risk by paying a bit more and choosing a permanent universal life policy.

The first step for this person would be to apply.  This will give him a health rating of Preferred or Standard (in most circumstances).  If he gets preferred rates, his price will be cheaper, and he may want to opt for more insurance than $100,000 to help his spouse with her financial needs after his death.  This will help pay for any funeral costs, excess medical bills, or just help retain his spouse’s current standard of living.  He may also wish to give some of this to his kids if they are struggling financially with debts or other bills, or to his grandkids if he has any.

If the family is well-off and $100,000 isn’t needed, he may decide to simply purchase a $25,000 permanent life insurance policy to make sure his funeral and other final expenses are handled without burdening his family.  A $25,000 permanent Universal Life policy would be $55 – $75 /month depending on health.

Life Insurance Example Three:

35 year old Male, married, recently had second child, recently purchased a $250,000 house on a 30-year mortgage.  Non-tobacco user.  Household income between $60,000 – $100,000.   Takes a medication for anxiety /mental health.

This person should probably be looking for a term life policy of 30 years in length to have protection for his family right now.  He should also be considering long-term protection and how much he might need for that.

For the Term Life Policy, let’s look at prices for a length of 30 years.  To get an idea of how much insurance he should purchase, let’s consider the reasons he would want the insurance.  $250,000 to pay off the loan on the house is a good place to start.  30 years of income for his spouse to be able to pay the bills and raise the kids alone would also be a good thing to consider. If he wanted to leave an average of $35,000 for 30 years, he would need just over $1,000,000.  So that brings us to about $1,250,000.  This is a good starting place.  He might also want to consider paying for secondary education or trade school to keep his family debt-free.  Taking everything into consideration – $1,500,000 would be a fine amount to apply for.

This 35- year old male should expect to pay up to $200/month for this $1,500,000 policy that would protect his wife and children for the next 3 decades.  Depending on how low of severity the insurance companies he applies with view his anxiety disorder, he could get it as low as $150/month or less.

In comparison, if he wanted a $1,500,000 permanent policy, it would likely cost between $600-$800, depending on health.

If the prices above seem unaffordable, let’s look at a lower cost option.  A $500,000, 30-year term policy would pay off the mortgage plus provide at least another $250,000 in financial support.  This could provide $25,000+/year for the next 10 years, which as you might imagine, would be quite helpful for a widowed mother of 2.  This policy would cost around $45-$75/month, depending on health.   This is a much more affordable option, and can provide the essential benefits his family needs in the case of his death over the next 30 years.

If this was still too expensive for his budget, a 20-year term policy (instead of 30-year) for $500,000 would cost around $30-$45/month.

These prices would be locked in and never go up for the entire length of the term.

Contact us for more information