Whole life insurance lasts your entire life, term does not
Whole life insurance is available at just about any age. And when you get whole life insurance, you’ll be insured for the remainder of your life – unless you choose to cancel it of course.
While whole life insurance costs more initially, it starts to balance itself out long-term. Let’s explain this with a real-life example.
Scenario 1 – Whole life insurance
Bob gets a $100,000 whole life insurance at age 30. He’ll be paying $67/month his entire life for this policy.
Let’s fast forward 20 years. Bob is now 50, and he has paid $16,080 in life insurance premiums. Since Bob never missed a payment, his policy is still in force.
Fast forward another 20 years, and 70-year-old Bob has now paid a total of $32,160 in life insurance. Unfortunately, Bob dies 20 years later at age 90. He’ll have paid a total of $48,240 in premiums, and his beneficiaries receive the $100,000 policy face amount.
Scenario 2 – Term life insurance
In this scenario, Bob gets a $100,000 term life insurance policy instead, with a 20-year term. The policy costs just $12 a month.
Now let’s fast forward 20 years. His $12/month policy has now cost a total of $2,880. But since Bob got a 20-year policy, his policy has now ended. 50 year-old Bob wants to keep $100,000 in life insurance, so he applies for a new 20-year term policy. He hasn’t had any serious health conditions and still doesn’t smoke. In that case, Bob could get a new 20-year policy for around $35/month.
Let’s fast forward another 20 years. 70-year-old Bob has now paid $2,880 + $8,400 in premiums. But, Bob’s second 20-year policy has now ended, so once again, he’s without life insurance.
At this point, Bob is still in good, average health. But, term life insurance is no longer an option at this age. A popular alternative for his age is final expense insurance (a type of whole life insurance). A $20,000 policy will cost him $148 per month.
Bob dies 20 years later. His final expense policy will have cost Bob $35,520 and will pay his beneficiaries $20,000.
If Bob would have gotten whole life insurance at age 30, and paid up to age 90, he would have paid a total of $48,240 in life insurance, but his beneficiaries would also have received $100,000.
This isn’t including the cash value that Bob’s whole life insurance policy would have built, which he could have used to pay for the policy after a certain amount of time.
If Bob would have gotten term instead, renewed his term policy, and finally applied for a final expense policy, he would have paid a total of $46,800 in premiums ($2,880 + $8,400 + $35,520), but his beneficiaries only received $20,000.
Now, the opposite is true as well. If Bob would have died at age 49, he would have spent $15,276 on whole life insurance premiums, compared to $2,736 on a term life policy. His beneficiaries would have received $100,000 with either policy.