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Term vs Whole Life Insurance
Suze Orman's take on Term vs Whole Life Insurance: When it comes to life insurance most people don't know the difference between term vs whole life insurance.
Term vs Whole Life Insurance: Suze Orman Weighs In
Suze Orman from the Suze Orman Show tells it like it is to Yvette who phones in about her whole life insurance policy (Universal Life Policy). Read the conversation they have and understand the differences between term vs whole life insurance.
Yvette: Hi. Thank you, Suzy, for taking my call.
Suze Orman: Anytime, girlfriend.
Yvette: My husband and I love your show. We respect your opinion and advice. That’s why we wanted to talk to you.
Suze Orman: You know, it’s always good when a woman who is married, her husband likes me as well because they were making finances a family affair and that makes your life a lot easier. Don’t you think?
Yvette: Amen. I agree.
Suze Orman: You got it, sister. What can I do for you?
Yvette: Okay. Currently, we have two universal life insurance policies. However, we’re concerned in having these policies because lately we’ve been hearing that they are might be not the best policies to have but we’re not hearing why. So we wanted to ask your opinion and advice on why these policies are maybe in question and are there any risks associated with universal life? You know, for instance 40 years from now?
Suze Orman: Here is what you need to do. More than even ask my opinion or other people’s opinion because just so you know I am not a lover of whole life, universal life, variable life. In fact, if I had probably had a top ten hate list of certain investments that I hate, that would be a pretty close up there.
I want you to go and look at your actual statement because you know the real truth is contained in the numbers on your statement. I want you to look at how many years you and your husband have been contributing money to this universal life policy.
Suze Orman: And then I want you to look at the cash value of that policy today.
Suze Orman: How many years ago did you do this?
Yvette: Well the one policy we have, we received it back in 1998.
Suze Orman: Alright.
Yvette: And it’s also the universal with cost of living benefit increased…
Suze Orman: Oh, woah. Zippy di do da! Because truthfully, when you go and look at how much is actually in the cash value, not accumulated value, cash value of what you could pull out right now, I will bet you dollars to donuts and those donuts could be Krispy Kremes if you ask me because it’s the only good thing we’ll going to be eating here. Really, you will find that you do not have as much money in that policy today and the cash value portion of it as you have actually put into it.
Yvette: Oh, I see.
Suze Orman: And that is why many people do not like it. Also, mortality charges as you get older in a universal, variable or a whole life policy go up because the closer you get to the point of your death the more they charge you for the insurance portion of this policy. When interest rates are this low, when the returns on the stock market and bonds are this low, the return that they are able to give you is absolutely nill number one, and number two the cost of insurance for many of these companies is going up and up especially since baby boomers are getting older and older. Yvette: Exactly.
Suze Orman: You will look on this policy projection that you have at the guaranteed projection. What this policy will be worth guaranteed, not the projection of it but the guaranteed values when you are 70 years of age and I bet you’ll going to see it’s zero. So you’re far better off if you want an insurance, get term insurance.
Invest in investments like mutual funds and stocks and stay away from universal life. Take a look at it. If you need other insurance by the way get that term insurance in place before you cancel your universal life. Once it’s in place, then cancel.
Term vs Whole Life Insurance: People Don't Know
It is not people's fault that they don't know the difference on term vs whole life insurance because the general public usually isn't educated on the details of life insurance itself.
The only time they learn more details about life insurance is when the life insurance agent is trying to sell them a policy and they normally lean towards a policy that offers a better commission: Whole life insurance!
You read that right. Life insurance agents do get a much higher commission when it comes to selling a whole life insurance policy (universal life, variable life, variable universal life) as opposed to a term life insurance policy.
Normally, it's your first year's premium that goes towards paying the agent's commission when it comes to selling a whole life insurance policy vs a term life insurance policy. It is the type of life insurance policy to sell when it comes to making money for a life insurance agent.
Term vs Whole Life Insurance: Comparing Term vs Whole Life
Term Life Insurance: Life insurance that covers the insured for a period of time. Normally the coverage period is under 30 years (30 year policy, 20 year policy, 10 year policy) and there is no investment portion. Also, it is just like Auto insurance where you pay only for PURE insurance. There is absolutely NO investment portion tacked onto the policy. Just life insurance. Plain and simple and Term Life insurance is SO MUCH CHEAPER because it is pure life insurance. Read on to learn about what to do with the savings when you buy term life insurance.
TERM LIFE INSURANCE = PURE LIFE INSURANCE (NO SAVINGS OR INVESTMENT VEHICLE)
Whole Life Insurance: Is life insurance that you pay for the rest of your life (Permanent Life Insurance) AND there is some type of investment vehicle included with it. Could also be known as Universal Life, Variable Life, Universal Variable Life or other variations.
WHOLE LIFE INSURANCE = PERMANENT LIFE INSURANCE + INVESTMENT
Whole Life Insurance or any variation of that will always try to add on a savings portion or investment portion onto the policy. You are sold on the fact that it will be used to pay for your children's college or those savings can be used for a rainy day. Well, you will need to "borrow" the money or "cash value" that you put into it.
Don't forget that your first year's premium payments on a Whole life insurance policy go towards the commission that the life insurance agent earns when he or she sold you the policy so you GET NO CASH VALUE THE FIRST YEAR THE POLICY IS IN FORCE!
Term vs Whole Life Insurance: Always Go With Term and Invest Your Savings
Your life insurance agent may or may not reveal to you the cost of a term life insurance policy if the whole life insurance policy option has been presented to you already but if you are able to get life insurance quotes for both types of policies then you will see a HUGE DIFFERENCE in price between a term life policy and a whole life policy.
Opt for a term life policy (if you have dependents that "depend" on your income) and take the savings and put it in a separate savings account or any mutual fund of your choosing (away from the life insurance policy).
This way you have full control of your investment outside of your insurance policy. You will NEVER EVER have to "borrow" or take a "loan" on your CASH VALUE like in a whole life insurance policy.
When looking at term vs whole life insurance our advice is to always opt for term life insurance. Once you are insured, take the savings and put it towards an investment vehicle yourself and keep it away from the life insurance companies that sell whole life!
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