There is no Whole Life vs. Term Insurance Debate

An aspect of the financial services and insurance industries that has always bugged me is this notion that there is some sort of debate over which life insurance product someone should buy.

To set the stage, the discussion generally notes the differences between term life insurance and whole life insurance (mostly harping on “price” paid for premium) and then makes some esoteric argument about why one is better than the other.

The truth is and has always been, that there is no debate between whole life and term insurance products. They serve two completely different purposes and are bought for very different reasons without a lot of (maybe even dare I say…any) overlap.

Who Buys Term Life Insurance?

Those looking to hedge losses sustained upon the premature passing of a wage earner buy term life insurance. There is no argument on this. Term life insurance is intended to recover possible loss for a known period of time.

There is absolutely no reason to buy any other form of life insurance to handle this circumstance.

This means there will be a large segment of the U.S. population for whom term life insurance is the first, last, and only form of life insurance they may ever own and there is absolutely nothing wrong with that fact.

But there’s a catch…

I don’t want to oversimplify the nuances of personal finance and leave people in a fool’s paradise. No, the guy who owns a blog that extols the virtues of cash value life insurance on an almost weekly basis did not just say that term insurance is the only life insurance product you should buy.

I simply pointed out that for a large number of Americans the answer to the personal finance word problem is income replacement for a given period of time–and no product will cover that product better than term insurance.

Who Buys Whole Life Insurance?

If term life insurance is the only product you need to buy to recoup lost earnings upon death what purpose then does whole life insurance serve? Who then buys whole life insurance?

The answer…whoever wants to.

Whole life insurance (and pretty much all derivatives of universal life insurance) is an extremely versatile product capable of bringing a lot of financial firepower to your corner.

But it’s not a product you get to buy until you have a certain number of financial affairs in order. Additionally, there’s a number of people who–by no real fault of their own–will never have a financial situation that means they’ve “ascended” to a point where their affairs are in order enough to even give whole life insurance a once over.

It’s not fair, and we all know what else isn’t…

Championing either Product is Bad

Trying to solve all of the world’s problems with a single product is not good.

Emphatically telling people to buy term and invest the difference is just an insidious as the life insurance agent who tells everyone all life insurance needs are permanent and therefore you need whole life insurance.

But why then, Mr. Roberts, do you have a website with 75 articles about whole life insurance for every one article about term life insurance?

Two reasons:

  1. Because there’s really not that much to talk about as it relates to circumstances that are served by term life insurance.
  2. My average client has a six-figure income and a seven-figure net worth. They all pass that “getting-financial-affairs-in-order” requisite I mentioned above and I built this web site for them and people like them.

There’s no debate, but there are a lot of people who don’t know what they are doing.

Plenty of people have tried to prove or disprove the superiority of both product types.

It’s elaborate, involves a lot of spreadsheets, and is a huge waste of time. Term life insurance will always be a first stop more need focused product (i.e. if you have a family and debt obligations, there’s an argument for your need for life insurance and you most likely need term life insurance).

Whole life insurance will always be a more want focused product for those who aren’t wondering where they are going to find the money to pay the premiums.

Buying whole life insurance with a reduced death benefit over term insurance because you want whole life insurance is kind of like skipping your child support payments because you want to buy a Porsche–neither ends well.

About the Author Brandon Roberts

Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. A specialist in the design and application of life insurance cash accumulation features, Brandon is one of the foremost authorities on the subject of coordinating life insurance cash values in a financial plan.

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