Financial Strategies # 2 Cost of Life Insurance - Term vs Whole Life

Obviously Term Insurance is the cheapest price one can pay for a death benefit during the time of one's life that you are least likely to die. I think that is common knowledge, right?

Because of this, it is actually good to own Term Insurance if you are the breadwinner in your family and you want to make sure your family will be taken care of if you pass away. If you have any debt that you don't want to pass on to your next of kin is another good reason to own some term insurance. However, Term insurance is cheapest the younger you are. Each time your TERM ends, the cost of the next term is going to be more expensive until you reach the age when you are most likely to die, when you actually need life insurance most, and the term premium then becomes unaffordable.

Did you know that 97% of all Term policies are never paid out. That means only 3% end up paying out the death benefit. Why is this so? Because you can either become uninsurable during your term and so you cannot qualify for another term or the cost is so high for the next term you can no longer afford to buy it. The insurance company actuaries know exactly how many people die at each age and charge accordingly. Their job is to have you pay for as long as possible till you get to the age when you are most likely to die and then up the price so you can no longer afford the premiums.

Don't get me wrong though, Term insurance has it's place and it is a good thing so long as you know it's limitations and use it accordingly. However, I believe it is in your best interest to definitely own whole life insurance policies as well. This series of financial strategies will be presenting all the reasons why this is so. But first I will now compare Term costs to Whole Life costs.

Term insurance is so cheap because it provides only one benefit, death benefit. Whole life insurance costs more money so obviously there must be multiple, impressive benefits for someone to be attracted to paying for it, right? Believe me, there are very impressive benefits which I will be covering in my Financial Strategies Series of Hubs. So keep reading them all so you get the whole picture.

Please notice in the diagram below that the line across the center of the diagram in the blue box illustrates the C.O.I. or Cost of Insurance over the life of a policy. Notice it is level. That means the premium you pay stays the same, it does not ever increase over the life of your policy. The policy is set up till age 121.

What it is showing is that in the beginning of a whole life policy the cost of insurance is high for the amount of death benefit you are allotted. However, this is also when you are least likely to pass away.This seems ridiculous to many people.

But, as time rolls by the cost actually becomes low in relation to your age compared to other types of life insurance. The older you get, the more likely you are to pass away and so you want your cost of insurance to be affordable at this time. You are also likely to want to stop working at some point and stop having financial obligations right? This is the time you want to have enough money stashed away so you can just enjoy yourself and enjoy your family.

Well keep reading to see how the life insurance premiums are no longer required to be paid at and after age 70 in certain specifically designed policies.

I should point out here also that the green diagonal line represents the split between the cash value side of a whole life policy (the bottom triangle) and the face value side or death benefit (upper left triangle) and how they must equal each other at age 121.

Here is an exam­ple of why one should start pay­ing for whole life insur­ance when one is young. A 21 year old male who starts pay­ing $3000 a year, or $250 a month and keeps pay­ing till he is 70 years old will be insured till he passes away and as he ages the cost of his insur­ance does not increase. In fact it decreases to $2,925 at age 66 and he no longer has to pay any pre­mi­ums after age 70. How much would it cost you to keep pay­ing for a term insur­ance mil­lion dol­lar death ben­e­fit at age 70 and beyond?

At age 21 the begin­ning death ben­e­fit is only $150,000 how­ever, not a very high per­cent­age of 21 year old’s pass away.
At age 31 the death ben­e­fit has dou­bled to equal 299,344.
At age 41 it has fur­ther increased to be 446,797.
At age 51 the death ben­e­fit is $607,313, but still only costs $3,000 per year.
At age 61 the death ben­e­fit is $801,198 and
at age 71 the death ben­e­fit has grown to $1,094,932.
At age 81 the death ben­e­fit has grown to $1,536,726. still no (out-of-pocket) premiums are required from you.
What if you live to be 91, your death benefit is now $2,148,019

Once again, the pol­icy no longer requires a pre­mium to be paid at or after age 70. How much would it cost you to keep pay­ing for a term insur­ance mil­lion dol­lar death ben­e­fit at age 70 and beyond? At what age are you most likely to pass away?

If one starts the correctly designed whole life policy at age 21, for a lifetime cost of 49 years x $3,000 = $146,625 one can have a two million dollar death benefit if they live to be 91.

A person who begins buying a whole life policy for let's say their newborn or 8 year old child will be setting that child up for a lifetime of paying only $150 a month for a lucrative death benefit through out their life and also, setting them up for a lifetime of insurability, which we know is a problem for people who have either future illnesses or dangerous professions etc. which term policies will not renew for them. Also, I will be sharing in this Financial Strategies series about how this policy is really a personal banking system that can benefit yourself and your children exponentially, while you are living.

Yes you can, even if you are older than in your fifties you can.

Cost of Life Insurance can be determined according to what your objectives and priorities are.

The following example was specifically designed for someone who just wanted death benefit that lasted their whole life but that they could afford to pay for. They have an ultra preferred health rating and so feel they will live for a long time, which matches their family history as well.

They chose $1,600 a month or $19,200 annually as their premium, knowing that they will not have to pay out of pocket, any more premiums after age 70 when they want to retire and enjoy their family and the rest of their life without worry..

At age 51 the death benefit is $350,000.

At age 61 the death benefit will have grown to be $697,454

At age 71 the death benefit will be 1,072,750 but at age 70 the premiums stopped needing to paid by the owner/insured.

At age 81 the death benefit would have grown internally to be $1,523,263 and

at age 91 the death benefit would be 2,101,093.

Remember now that one is no longer required to make any more premium payments at and after age 70, so for a total cost of $364,800, in the properly designed life insurance policy, if one passes away at age 91 a wonderful legacy of over two million dollars can be left for the loved ones left behind.

Also, one must remember that an emergency fund of over one million dollars has built up over this time period as well, so if any unforeseen costs for medical expenses or other emergencies surprise them, because life happens,, they have a huge amount of cash value available to them.

Doesn't this seem like a plan that could take a huge amount of worry out of the picture.

So you can compare the amount of premium paid over 49 years by a 21 year old ($146,625) and over 19 years for a 51 year old ($364,800) and see why it is better to start young. However, it is still well worth it for an older person to also start this specially designed policy also.

To learn more about life insurance watch this 10 minute video. Password is WLI. I give free consultations so please feel free to check out my offer especially for you, here.

Read my 'Financial Strategies #1 Tax Free Earnings' Hub here Or my third in this HUB Financial Strategeis Series here - Is Paying Cash or Cash Vlaue KING

Presentation and supporting material are designed to educate and provide general information regarding the subject matter covered. It is presented with the understanding that the presenters are not engaged in rendering legal, financial or other professional advice. It is also understood that laws and practices often vary from state to state and are subject to change.
All illustrations and examples provided in these materials are for educational purposes only and individual results will vary. Each illustration or example provided is unique to that individual and your personal results may vary.
Because each situation is different, specific advice should be tailored to each individual's particular circumstances. For this reason, the audience is advised to consult with a qualified licensed professional of their choosing, regarding that individual's specific situation.
The authors and presenters have taken reasonable precautions in the preparation of all materials and believe the facts presented are accurate as of the date it was presented. However, neither the authors nor the presenter assumes any responsibility for any errors or omissions.
The authors and presenters specifically disclaim any liability resulting from the use or application of the information contained in all materials, and the information is neither intended nor should be relied upon as legal, financial or any other advice related to individual situations.