Which is better Term or Whole Life insurance? part one…

#1. Which is better Term or Whole life insurance?

This is like trying to say which is better an apple or an orange.   While both an apple and an orange is a fruit they are both very different.   Both an apple and an orange are good for you and are a very healthy choice to make but you will enjoy them for very different reasons.    Likewise, term and whole life insurance are both life insurance products that are very good for you and for your family but for different reasons.   These policies are not right or wrong, they are simply a part of a healthy financial plan when used as an appropriate match for your needs.

What is the Difference between Term and Whole Life?

This article is in three parts,

  1. The different purpose of Term verses Whole Life insurance.
  2. The different Tax strategies of a life insurance policy
  3. The investment options of a Term and a Whole life insurance policy

please check out all three blogs and then call Michael Spears at 403-831-7820 to set up your personal policy plan.

Step one: The different purposes of Term verses Whole Life Insurance

The most important part of any decision is the WHY.

  • What is the purpose of this plan?
  • Why do you need to do this now?
  • What are future benefits of taking action?
  • What the consequences of not taking action?

When you are aware of the needs that have to be resolved and the reason for taking action NOW, then there is no doubt about the decision.   If this is a question to you then please speak to an independent life insurance broker.

When assessing the need for life insurance we first list all of the potential expenses and financial responsibilities that a person may have which are going to be passed onto their spouse or children.     Then we ask our self, do we want to leave others with my debt to pay and the responsibility to pay for my expenses?   If you accept responsibility to pay for your own expenses, then you need make a realistic plan which involves a guaranteed savings investment or a guaranteed life insurance policy.

Some will respond that they do not need insurance because their kids can simply sell their house.   However we need to consider that when a personal property passes the person inheriting the house will pay tax on the property transfer.   Also if they choose to sell the house, the income from the sale may be paid out many months after the expenses are required to be paid.   In some cases people choose to keep a house as a rental just because they were unable to sell it at the appropriate price.   We should NOT assume that your kids will benefit from your old house as a property sale is not a simple guaranteed.   Therefore your old house is not a simple gift to make.

Financial needs assessment and the need for life insurance

Some of these expenses are temporary and some are permanent detailing a needs assessment will clearly indicate the need for both types of insurance such as the following:

Financial needs and expenses that would be inherited by your spouse or kids.

Temporary needs

  • Debts
    • credit cards
    • second mortgage and student loans
  • Income replacement
    • Your income that is needed to care for dependent children and a dependent spouse.
    • An amount that when invested will produce an annual income that replaces your income.
  • Mortgage payment
    • Have a lump sum available to pay off the mortgage totally.
    • Be aware some people renew the mortgage as a debt consolidation, so the amount may increase.
  • Education expenses
    • Tuition costs for adult children at college and university
    • Living expenses during the college and university years

Permanent needs

  • Funeral expenses
    • You may choose to write your funeral plans in advance but it is better to not pay for it in advance.
    • If you pay for it in advance, then you take away some options for your family.
  • After death tax return
    • This may sound silly and I agree we should find a way to petition against this…
    • But it is true, after some one passes away the C.R.A. will still require their tax return to be completed and tax may be owed.   If you have given away all your investments in the will then who will pay the tax bill?
  • Credit card debt that is passed on to the family or the estate
    • I hope everyone pays off their credit card regularly, but if you leave any debt it will be paid before any of the kids receive their inheritance.
  • Fees for the Executor, the tax return preparer and the lawyer
    • The executor, bookkeeper, tax return preparer and lawyer are entitled to be paid for their work.
    • Even if you ask your oldest child to be the executor, they will have expenses in the due process.
  • Gift to family for grieving process and to leave a legacy
    • This is totally your choice, however this will have a big effect on how people remember you…
    • Do you want to be the person who planned ahead well and treated every one generously?

The details of both of these lists will be unique to everyone, but it is very important that everyone takes time to write out answers to all of these questions and plan appropriately.    To help you with this please contact an independent life insurance broker.

Considering this list of temporary and permanent needs, it is clear that while everyone may choose a different value for the benefit of the policy, everyone should have some term and some whole life insurance.

So regarding the question of which type of policy is better, I would just say again that neither are better and neither is right or wrong.   They are both important for own reasons.

I invite you to call Michael Spears at 403-831-7820 to set up an appointment to find the right customized mix for your future financial protection.

Thank you

Michael Spears