Whole Life or Term Life

[James Smith]

I am married and in my thirties my wife is the same age. We have an 18 month child and another baby on the way. After doing some research between Whole Life and Term Insurance I decided that Term Insurance should be able to fulfill my needs incase something should happen. My question is:
1) Am I making the right decision in going with Term?
2) How much coverage should I buy
3) How many years should I buy
4) Can anyone recommend a reputable Insurance Company
Thanks!

 

[ehannigan]

Hi James,

1. That depends on your needs. If you only need the coverage for a specific amount of time then yes term is what you want to buy. If you think you'll need the coverage for the rest of your life then you might want to go whole or universal life.

2. It is recommended that the household breadwinner carry 10 times their annual income. Or, you should have enough coverage so that if something happens to you, your wife will be able to pay off the house, the car, college tuition for the kids, etc.

3. At minimum, until your mortgage is paid off or your kids are 18. Based on your age, a 20 -30 year policy should work.

4. There are many reputable life insurance companies. The company I work for only works with companies rated A or higher as according to AM Best. You can request some free quotes from us at www.lifequotes.com. Warning! You will be contacted by an agent! Make sure to read the privacy policy on the website.

 

[dgoldenz]

For most people, the best approach is a combination of term and permanent insurance. The term insurance will get you the most protection for your dollar, and if you are in good health at age 35, coverage is dirt cheap. I wouldn't short-change yourself buying 20-year term for a few bucks less. What do you plan to do at age 53 when you only have two years left on your term insurance and realize you still need another 20-30 years of coverage? What if you're uninsurable at that point?

The term insurance helps protect the loss of income, pay off the mortgage, send the kids to college, etc. for the near-term losses that would occur. Of course, everyone will die at some point....who will pay the funeral expenses? What if you spend most or all of the money you saved on end-of-life care, but your wife lived another 10-20 years after you passed? If life worked out perfectly, you would have enough money saved up for retirement to not worry about it....but of course, things change and nothing ever works out the way you intended it to. The permanent insurance, whether universal life or whole life, provides a "safety net" for the "what-if" scenarios that occur later in life. It's much cheaper to lock in your benefits when you are 35 than when you are 55 or 60.

I don't know how the other guy came up with 10x income as a baseline for the amount of coverage, but there are many factors to consider, not just your income. On that note, someone age 35 should have much more than 10x their income in life insurance if they are married with kids. If you died tomorrow, would your wife and kids be able to live off 10x your income for the next 20 years? 30 years? 40 years? 60 years? Does your wife work and provide an income too, or does she take care of the kids and depend on your income? Lots of things to consider...

At age 35, I would be looking at 30-year term and some form of permanent coverage. Universal life will give you the lowest premium for the death benefit you choose, whole life will give you more cash value, but you pay more for it each year. Which would you prefer? The 30-year term would at least take you into retirement age and have the kids out of college by then, unless you plan on having more kids.

As stated, there are many excellent life insurance companies. Which one will give you the best rate based on your personal medical history and coverage amount is another thing....but coverage from any of them will be pretty similarly priced if you are in good health.

I would also consider a policy for your wife given how cheap it will be - if she died tomorrow, could you still work the amount of hours you do, or would you need to take time off to take care of the kids or hire a nanny? You get the idea.

 

[moonlightandmargaritas]

2. It is recommended that the household breadwinner carry 10 times their annual income.

Recommended by whom? The world is not one-size-fits-all, and life insurance is FAR too important to be left to "rules of thumb". This is...dumb.

Or, you should have enough coverage so that if something happens to you, your wife will be able to pay off the house, the car, college tuition for the kids, etc.

"Paying off the house" might, or might NOT be the best advice - it depends on circumstances at the time of death.

The company I work for only works with companies rated A or higher as according to AM Best. You can request some free quotes from us

Oh now I get it, this is SPAM. I hope they've got some smarter agents than you.

 

[Dave020]

For most people, the best approach is a combination of term and permanent insurance. The term insurance will get you the most protection for your dollar, and if you are in good health at age 35, coverage is dirt cheap. I wouldn't short-change yourself buying 20-year term for a few bucks less. What do you plan to do at age 53 when you only have two years left on your term insurance and realize you still need another 20-30 years of coverage? What if you're uninsurable at that point?

+1,000

Most of the big carriers offer blended products for exactly this reason.

 

[LGilmore]

1) Am I making the right decision in going with Term?

Term protects against a probability, whole life covers a certainty. Like Gold pointed out you can combine types of coverage to protect for both probability and certainty.

Another thing to consider is what happens if your health changes? I can tell you my current business is mainly dealing with late 50's and 60plus year olds who bought just term in their 30's who have found they still need insurance. Only a handful are as healthy as they were in their 30's.

The one thing I've noticed about term insurance is it sure has a way for making up for all those saved dollars from not buying whole life if your health changes. Make sure any term you buy, is convertible term.

2) How much coverage should I buy

I'd start with at least an amount that would put your family at zero debt if you failed to wake up tomorrow. Then start looking at what your plans are for your family and what it would cost if you weren't there to see them through. The right amount isn't an exact science, it's more of a gut feeling you get that allows you to sleep at night, knowing you've done the right thing. An agent or software program can't tell you with 100% certainty how much to buy. They can just point out what you might need. The rest is up to you.

3) How many years should I buy

When ya gonna die? Know that, and you've got this whole thing licked.

Again depending on your situation, you might carry some temporary coverage and some permanent coverage. With the idea of dropping (or converting) the temporary coverage down the line.


4) Can anyone recommend a reputable Insurance Company
Thanks!

There are many fine companies to choose from out there. I often combine companies for clients to play to each companies strengths.

 

[scagnt83]

2. It is recommended that the household breadwinner carry 10 times their annual income.

This is a very old and very outdated LI philosophy. When I got into the business I used to hear 15 sometimes...

Everyone else has pointed this out as BS, which it is.
A multiple of income is not the best way to determine the right amount of coverage; it should be a combo of many factors that have already been pointed out. Listen to the guys who are not trying to sell you anything!
--------------------------------------------------

On an interesting note.

When 9/11 happened the gov decided to pay all of the victims families a DB because of the tragedy.
When they where researching an appropriate amount to give; the gov eggheads found that 20-25 times income was approximately the amount that "most" working americans need in LI.
I cant remember if they paid 20 or 25 times income, but it was one of the two.

 

[Cornelius]

Don't forget to consider a disability policy. Protect that income.

 

[Franz Kafka]

1) Am I making the right decision in going with Term?

There's no wrong decision as long as you have some coverage. If you have mucho dinero, you could buy permanent and have your premiums work for you like a savings plan. If you don't have mucho dinero - buy term and work hard to make mucho dinero and convert to permanent.

2) How much coverage should I buy

Ask your wife.

3) How many years should I buy

Ask your wife because she will be running the family when you're gone.

4) Can anyone recommend a reputable Insurance Company
Thanks!

They're all reputable. There are no good or bad companies.

 

[BNTRS]

Don't forget to consider a disability policy. Protect that income.

X2X2X2X2X2!

You are making it much more complicated than it really is. Term insurance is for people who don't have their shi...stuff together, and some never will. Don't misunderstand, it's completely ok to be behind the 8-ball, the product wouldn't exist if it weren't.

The fact that you have two kids is important, but doesn't really give anyone anywhere near enough information to determine your real needs. Here's the deal, you need to have a conversation with someone and answer their list of questions. The advice you have been given, while made with the best intentions I can assure you, could be potentially dangerous if left to you to play impromtu financial expert yourself (yes I get to make the assumption this isn't a topic for which one would consider you an expert; you're the one who started this thread).

No quick rule of thumb is going to make this decision any easier.

Now the big point you are missing: Disability insurance. This should be higher on your to do list than life insurance because it's a lot more likely to turn your life into a living (notice the emphasis) hell. If you have a group plan through work examine it very carefully with someone who knows what they are looking at. Usually, we are more likely to be done in by what we think we know than what we don't know.