Whole Life or Term?

There are several different types of life insurance products on the market, but for the most part they fall into two distinct categories: whole life and term. Which one is better?

There are several different types of life insurance products on the market, but for the most part they fall into two distinct categories: whole life and term. Which one is better? Term, without a doubt.

Whole life insurance is designed to cover you for, well, your whole life. You can purchase a policy at 21 and rest assured that the policy will be in force until you turn 100 if you’ve paid your premiums. It’s also considered a savings vehicle because there’s a cash value to that policy. Sounds good, right?

Wrong.

Policy premiums are calculated on your risk of dying during the policy’s term. While the 100+ age group is the fasted-growing population in America, most of us will probably die before 100. On the off chance that you do live to 100, your life insurance policy would automatically pay you the face value. So the company knows that there’s a 100% chance that they will have to pay you or your beneficiaries. They charge a higher premium for that.

Term life, on the other hand is issued in 5-, 10-, 15-, 20-, 25-, and 30-year increments. If you’re in your twenties, your life expectancy is probably over seventy. The odds are fairly good that you won’t die in the next thirty years. Insurance companies know this, and charge a lower premium.

That cash value that whole life policies have? The company will allow you to borrow against it, but you will be required to pay it back with interest. If you die with an outstanding loan, the insurance company will deduct that amount from the face value, which means your family will receive less money. And if you don’t have any outstanding loans, you don’t get to keep that cash value. The insurance company keeps it as part of the “cost of doing business.” Funny, I thought the premiums were supposed to cover the cost of doing business.

Term life has no cash value, so there’s no overhead for managing an investment. You keep the part of the premium that would go toward that cash value in a whole life policy. That’s more money in your pocket.

So what to do? Buy term and invest the difference. If it would cost you $100 a month to have $100,000 in whole life coverage, you can most likely get the same coverage for only $50 a month. That leaves $50 that you can invest on your own. Historically, the stock market has earned 10% over any 30-year period. If you were to invest your $50 a month at 10% (compounded annually) you would have $107743.58 at the end of your thirty year term. If you died during those thirty years, your family would also receive the $100,000 from your term life policy. So your family would receive at least $100,000 if you live, and over $200,000 if you die. Whole life would pay your family $100,000, minus any outstanding loan balances against the cash value, and only if you die.

Makes sense to go with term life, doesn’t it? If you’re ready to make the switch, or if you’re one of the 68 million Americans who don’t have life insurance at all, contact us today to schedule a consultation.

How much life insurance do YOU need?

Do you have any idea how much life insurance you actually need? More than 40% of Americans don’t have life insurance at all, and over half of those who do have it are underinsured. Here’s a case study that might help you assess your own life insurance needs.

Do you have any idea how much life insurance you actually need? More than 40% of Americans don’t have life insurance at all, and over half of those who do have it are underinsured. Here’s a case study that might help you assess your own life insurance needs.

Bob Bobberson is a healthy 45-year-old man who doesn’t smoke. Bob makes $45,000 a year as a real estate agent. His lovely wife Bobbina is a stay-at-home mom to their three kids, Bobby (13), Robby (10), and Bobette (6).  They purchased their $120,000 home five years ago, and currently owe $100,000 on it. They have two cars, owing a total of $11,000 on them, and have $15,000 in credit card debt. How much life insurance does Bob need? Here’s how a conversation with Bob’s insurance agent, Fred, might go:

Bob: “I got a $250,000 policy through my job, and I think that’s enough.”

Fred: “We can take a look at your numbers and figure that out. First, add all personal debt, such as credit cards and auto payments and write that down.”

Bob: “Why do I need to cover all of it?”

Bobbina: “Because I don’t want to keep paying for that pickup truck that you insisted on getting, and I probably couldn’t give that gas-guzzler away if I tried. And a lot of that credit card debt is left over from before we even got married!”

Bob writes down $26,000.

Fred: “Then, add income replacement for at least eight years.”

Bobbina: “Make it twelve. That’ll last until Bobette is grown so I can stay home with her like I have for the boys.”

Bob: “Let’s see . . . 45 times 12 . . . carry the one . . . that’s $540,000.”

Fred: “Now add in what’s left on your mortgage.”

Bob: “ALL of it?”

Fred: “Do you want to leave Bobbina with a house that may be foreclosed on, or do you want to leave her with a house that’s fully paid for?”

Bobbina: “Yeah!”

Bob writes down $100,000.

Fred: “And finally, factor in the cost of sending each of your kids to college.”

Bob: “Can I just pick my favorite?”

Bobbina: “No! And remember, Robby’s in the gifted program at school and might get to go to Harvard!”

Bob: “Yeah, but Bobby’s a jock. He’ll probably get a scholarship.”

Fred: “It’s possible he could get injured. It’s probably best to not count on a scholarship. You can probably count on about $75,000 for four years in a public college per kid.”

Bob writes down $225,000.

Fred: “That adds up to . . . let’s see . . . $801,000. I know I can’t afford THAT!”

Bobbina: “Well you can’t afford to leave us in the poor house either!”

Bob: “Do you have any idea what it would cost to get that much coverage? I already pay $250 a month for what I’ve got!”

Fred: “Hold on just a moment and let me get you a quote for the premium . . . 45 . . . male . . . nonsmoker . . . it looks like I can get you $801,000 in coverage for . . . $291 a month.”

Bob: “Really? That’s close to what I’m already paying for less than half that!”

Bobbina: “We’ll take it!”

As you can see, Bob was severely underinsured and didn’t even know it. And he didn’t think that he could afford what he really needed. And here’s the interesting part: as Bob gets older, the amount of insurance he needs will decrease. His mortgage principle and credit card debts will go down as he continues to make regular payments. His kids will get older, graduate from college, and leave the house. Eventually the only coverage he will need will be for his final expenses and income replacement for his wife. This is called the Theory of Decreasing Responsiblity.

Try running the numbers for yourself:

  • Add all credit, installment, and personal debt
  • Multiply your annual income by at least eight
  • Add the payoff balances of your first and second mortgages
  • Multiply the number of children you are responsible for by $75,000 for a public college education.

Add those numbers together to get the total death protection you need. If, like Bob, you discover that you’re underinsured, or if you’re completely uninsured, please contact us today for a custom quote.

Renters Insurance

Who’s responsible for replacing your stuff when apartment buildings attack? Here’s a hint: It’s not your landlord.

Back during my apartment days, I woke up one morning to the sound of a very loud truck right outside my window. It was being used to pump about a foot of water out of an apartment in the next building. During the night, a hot water pipe had sprung a small leak. That leak shot onto the cold water pipe right next to it. The cold water pipe melted, creating an enormous leak in the ceiling of one of the downstairs units. When the apartment manager asked the tenant why she didn’t call the emergency number when the water started coming into her apartment, she said that she had been asleep and dreamed that it was raining.

Basically, everything in this young woman’s apartment was ruined. I know, because it was all out on the lawn that morning. It’s bad enough to deal with having all your stuff destroyed, but what if you couldn’t replace it? You see, by law Texas landlords are not responsible for replacing or repairing tenants’ belongings. Simply put, the apartment complex had no responsiblity to reimburse the tenant for her damaged property, even though it was the landlord’s property that caused the damage.

The best way to protect your property is to purchase a renters policy. This provides coverage for your things while they’re at home or out with you. The cost is very reasonable. Depending on your address, you can purchase $15,000 of coverage for about $15 a month. So ask yourself: If you woke up and found that your bedroom had become a swimming pool overnight, could you easily pay to replace all your stuff? If not, contact us for more information about renters coverage.