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The reason that I share this divergence of the two types of term and whole is the need for both. Not just one, and not just the other. Many people pit one type against another in a heated term vs. whole life debate, but it’s unnecessary and ends up missing the whole picture.
While term premiums are lower, they are an expense. Whole life premiums, while higher, can be thought of as savings. Most people cannot afford to buy their entire human life value in whole life insurance. Term insurance allows you to fill the gap between your whole life insurance death benefit and your human life value.
Term life has no living benefits at all. You cannot use the policy at all while you are living. The only benefit is the death benefit paid out to your heirs when you die if you die during the term of the policy.
However, if we only look at life insurance as a place to store cash, and we forget about insuring you for your full human life value, we’ll lose the opportunity to ensure that your family is taken care of in the event of a personal tragedy.
The goal is to have a hybrid plan where we use whole life insurance as your place to store cash, where your primary dollars are going into your account of safe, liquid, growing, guaranteed money. And we want to use term life insurance to get you up to your total human life value.
For example, this may look like having a $300,000 policy of whole life insurance and another $1.7 million term life policy.
Ideally, your term policy is convertible, meaning that at some point in your life, whether you receive an inheritance, lump sum of money, or an increase in income, you want the ability to convert portions or all of the term life policy into another whole life policy.
Ideally, you want to make sure your family is covered for your full human life value, and also ensure you have the greatest asset to store cash.
One last thing to note, many people believe that you have to be the working spouse that provides the family’s primary income in order to need or qualify for life insurance or have a human life economic value. This is not the case. Even if you are the spouse who stays home with the children, it’s important for you to have life insurance. The reason is that if you were no longer living, there would be a tremendous additional expense to your family for childcare, cleaning, etc., for all the responsibilities that you handle on a daily basis, which may not bring a dollar amount into your household, but which are truly an economic value.
I hope this sheds some light and brings some clarity into the world of life insurance, and how to start thinking through this in your personal life and your family.
I’d love to have a conversation with you if you want to talk through these ideas or figure out how it might work for you.