February 16, 2010

Side by Side Premium Cost Comparison of Term versus Whole

While watching the Suze Orman show the other week they had a call which gave a good comparison of term to whole life life insurance.   There was a caller who had life insurance for himself and his wife.  The man had a 30 year term policy and the woman had a whole life policy.   Both policies were for $1 million in coverage.   The woman was 35 years old and the man was 39.   The woman paid $1000 a month and the man paid $100 a month.  

So to sum up:

Man with term : Age 39, Policy 30 year term, Coverage $1M, Monthly cost $100
Woman with whole life : Age 35, Policy = Whole life, Coverage $1M, Monthly cost $1,000

Now its not an exact equal comparison since its a 39 year old man compared to a 35 year old woman.  But their ages are close enough that I think its pretty similar. 

 The same amount of whole life coverage was 10 times as expensive as a 30 year term policy.

I've actually seed this it said before that whole life generally costs 10 times as much as term life.   So here's an example of that.

The annual costs are:
30 year Term Life : $1M coverage = $1200 /year
Whole life : $1M coverage = $12,000 / year

$12,000 a year is a pretty hefty amount to sink into insurance.   Of course you are building cash value so its not as if you're throwing that money away.  But I don't think most families have $12,000 available for such a thing. 

What if you lose your job?   Will you still be able to make $12,000 annual payments to keep the whole life policy?   It would be a lot easier to manage a $1200 payment than a $12000 payment.

One thing I find a bit annoying about trying to compare term life to whole life insurance is the lack of information on whole life available.   It seems if you want to find out how much whole life costs you have to have a consultation with a salesman who is going to try and sell you whole life.   For term life you can easily get quotes online at places like QuickQuote.com.    So anytime I see information on actual costs for a whole life policy I find it useful.

Blog Widget by LinkWithin