Have you seen the Suze Orman Show on NBC or CNBC?
You might have an idea of Suze’s stance on Term Life vs Whole Life Insurance . Below is Suze’s conversation with a guest caller which will give you more insight on her thoughts about Whole Life Insurance .
Deepak: Hi Suze! We love your show. My wife and I watch it every week. It’s such an honor to talk to you.
Suze Orman: Oh. Thank you! What can I do for you?
Deepak: Well Suze, a friend has recommended that we buy a whole life insurance policy as an investment.
Suze Orman: Stop! Stop! There isn’t a friend in the world. Not one friend in the world that if it is a true friend that would recommend you buy a whole life insurance policy. A snook, somebody who wants to take you, somebody who in my opinion is not a friend maybe. But there is no way a friend would do it. Does that answer your question already?
Deepak: It gives me a good sense of what you are thinking.
Suze Orman: Alright, how old are you though Deepak?
Deepak: 31
Suze Orman: How much of an insurance policy? What was the death benefit?
Deepak: Um, I think 50…$500,000.
Suze Orman: $500,000? Alright how much was it per year?
Deepak: Fourteen
Suze Orman: Fourteen Hundred?
Deepak: $14,000
Suze Orman: Fourteen Thousand dollars a year?!?!
Deepak: …and the idea was largely use it as an investment to put money away to save on taxes.
Suze Orman: Ok, just out of curiousity…made my nose itch. I have to tell you whenever my nose starts to run I feel like Samantha…where I wanna…you know on Bewitched? I don’t know if you were even born back then where I want to twinkle my little and get that guy out or whoever that friend is and off the face of this Earth.Listen, insurance is not an investment. Does this friend of yours happen to sell whole life insurance?
Deepak: Boy it seems like you’re reading my mind here.
Suze Orman: Oh sweetheart that’s not a friend that a sn….I don’t even know %#*#)$! You know, it gives me dandruff I think. Listen, you can get a half a million dollar term policy for 20 years at your age for approximately $25 or $30 per month. OK? That’s $300 per year. Now, if you really want to make an investment you could take all those other $1000s of dollars and take that money and invest it where? In a retirement account, a piece of real estate, in stocks, bonds, whatever it may be where it absolutely makes sense to you.
Do you know that I am a licensed insurance agent. A life insurance agent and I am licensed in every single state in the United States except Hawaii because I don’t want to go to Hawaii right now to take the exam.
So I have been licensed everywhere. Very few people can tell you that they have that type of insurance background. I can tell you that if you put $14,000 into a whole life insurance policy, my friend, how much commission do you think I or your friend would make off of that $14,000 deposit?
Deepak: Like atleast a thousand or two.
Suze Orman: Oh, are you sitting down?
Deepak: I am.
Suze Orman: Are you? What don’t you try about $10,000. Ok?
Deepak: Wow.
Suze Orman: So yeah, he could buy you…just forget it. Here’s the bottom line. Don’t do it. Do what I said. Buy a term insurance policy. You can get a half million dollars that way. $300 a year and tell your friend why doesn’t he go and make some real enemies!
Suze Orman doesn’t seem to like the permanent type of life insurance: Whole Life Insurance very much (also called Variable Life Insurance or Universal Life Insurance)
Whole Life Insurance is way too expensive for the amount of death benefit one can receive
Paying $14,000 (although not all Whole Life policies are this costly) you only receive $500k of coverage
Paying $300 (or less) per year (not month!) you can get about $500k worth of term life insurance coverage
For Permanent Life coverage you are paying a whopping $13,700 extra .
With Term Life vs Whole Life Insurance let’s look into the detailed differences with those two types
Term Insurance is for a set term or time period from 1 year and usually up to 30 years .
When Life Insurance has an investment vehicle attached to it you now have whole life insurance coverage and monthly premiums will be paid for the rest of the insured’s life .
For Term Life Coverage it is basically pure life insurance with nothing else attached to it .
Combining life insurance and an investment does not make any sense but that is what whole life insurance is. Is there any reason why life insurance should be added to an investment?
Each month, for your entire life you will be paying monthly life insurance premiums if you have a whole life policy .
Understanding what reasons you need life insurance before buying it is key
Life Insurance protects the income that the working spouse brings home to sustain the family and the dependents of the family. Without the monthly income that would normally be available the family’s financial situation would be at serious risk. Protection of the income provider is the key to having life insurance.
The income from the working spouse is important for the rest of the family. Especially the children who are dependent on that income to survive. When they get older and are able to work they no longer need to depend on the parents’ income. Life insurance isn’t important when the children is not counting on the monthly income from the parents any longer.
There is no one that wants to throw money away at a lifetime of monthly life insurance premiums
You don’t make anyone rich by owning life insurance. Don’t fall into that trap . Life insurance is of utmost importance to have during a certain period of time within a family . There is no point in buying life insurance for the sake of making someone rich. You’re just throwing money away. The right choice is to purchase term life insurance for the time it is needed.
The younger you are the lower the monthly premiums will be for life insurance. Once you purchase a policy the monthly premiums are fixed . Purchase Life Insurance coverage when the family needs the income protection and no other time.
With the savings you have by buying a term life insurance policy go ahead and invest it or save it in the bank .
Anything good about the investment portion of permanent coverage?
Well, whole life insurance has the investment component which is also known as “Cash Value”. Your money goes to the investment and you can then “Borrow” from your own money paying it back with interest .
Why must I borrow my own money and pay it back?
The only way to access your investment is to borrow it and pay it back with interest. It’s how whole life insurance works. “Cash Value”, the investment portion sounds like music to people’s ears but it is very much an empty deal
The ultimate deal breaker? You receive absolutely NO CASH VALUE the first year of premiums payments . Yes, that’s right . Your beloved “Cash Value” will start to grow starting the 2nd year of your costly life insurance premium payments in a whole life policy. The first year’s premium payments go to paying the life insurance agent who sold you that whole life insurance policy . Your hard earned money flows right through to paying a hefty commission for a whole life insurance policy salesperson.
Only purchase term life insurance when you have dependents that count on your income to survive. If you don’t then you really have no need for life insurance coverage
You can take the savings you would have from purchasing a term insurance policy instead of buying a whole life insurance policy and put it into a retirement account to invest any which way you choose. No borrowing and 100% control. Always have 100% control of your funds so that you have the freedom to move it anywhere you choose . Keep away from any type of life insurance that is asking you to put money towards cash value or an investment. Examples include variable life insurance, whole life insurance, permanent life insurance or universal life insurance.
By following the methods above in comparing Term Life vs Whole Life Insurance you will be saving you and your family quite a large sum of money.