Tom Discusses Differences in Life Insurance Policies
Transcript:
Easan Arulanantham:
I am a new parent, and I’m starting to think about, you know, some life insurance for myself. What’s the difference between a whole life versus a term life insurance and which is better for a newer parent?
Tom Vaughan:
Yeah, so generally speaking, as a newer parent, you could make a pretty good argument for a term life. Term Life is a lot less expensive than whole life. Because it’s only for a term, 510 2030 years you pick a term, the longer the term, the more expensive it is. And the more you need an insurance, the more expensive and the worse your health, the more expensive, so you go the other way, it was all less expensive, but term insurance is meant for, in my opinion, kind of term problems. So, you know, when, when my kids were born, I had a mortgage, I had a, you know, a business, I had, you know, the possibility of school and college for my kids. And so I wanted to make sure that if something happened to me that my wife and children, you know, had the ability to handle all of those still have my kids go to college and still have the mortgage be, you know, be able to be paid and those types of things.
So, you know, get a 20 or 30 year term policy, it’s going to cover the timeframe that I’m looking at, eventually, hopefully, your kids get through college. And you know, I have to in college now, so I’m still waiting Anyway, you know that that aspect, it will, they’ll start to take care of themselves. And maybe you don’t need as much insurance as far as that goes, whole life insurance is a lot more expensive. And because it doesn’t have a term, it just keeps going for as long as you can pay for it. Sometimes they have what’s called a paid up policy where your cash value can start to pay your premiums as you build up. So oftentimes, a whole life, there’s a cash value. So people look at that in lots of different ways where you don’t have a cash value in term insurance. But generally speaking, the whole life is used for really for estate planning purposes. And where you know, you have an estate that’s maybe going to be taxable, or you have an estate that’s not that liquid, like a lot of real estate.
And so a whole life policy would come in and pay, you know, the estate taxes or pay off different things that might be there. And so the the challenge with the whole life policy is that oftentimes you really don’t have an estate till you’re older, and then just a lot more expensive to get the insurance. So there’s a lot of pieces there. You could also make an argument for having a whole life policy fairly young, at least some, just because, you know, oftentimes you don’t have medical conditions, you know, that that you might have as you get older as far as that goes. So there are four different scenarios. And again, what I’m saying is probably somewhat controversial in some some circles to be honest. Because I’ve run into a lot of people that think oh, life is perfect for everything or term is perfect for everything, you know, so but that’s how I look at it really term is for a term problem. And whole life is for a lifelong issue which would most likely be an estate planning issue or or liquidity issue. But yeah, anyway, they’re there. those are those are the differences.