Term VS Wholelife: Is Term Life Insurance Better For You?
Updated: Nov 2
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Whenever it comes to life insurance, the most common question that clients would ask is: “Which is better for me? Term life or whole-life”
In my other article, we’ve looked at the quantitative comparison of whole-life versus term life insurance and also the considerations to have as to whether a whole life will be better for you.
In this article, we will be looking at 3 considerations to have as to whether term life insurance will be better for you.
1. You need this coverage for a short duration of time
Just as you would rent an apartment if you intend to stay for a short duration, you would also rent your coverage if you need it for a short duration of time.
In the context of insurance, short duration, in this case, refers to anything that is lesser than 20 years.
For things like your mortgage liabilities and children’s dependency, it does not make sense for you to commit to whole-life insurance to provide for this temporary coverage because let’s face it, you will not be paying for your mortgage for life and neither would your children be dependent on you for life.
For example, if you need basic death coverage for only 20 years, you will see that the net total premiums payable (total premiums paid - surrender value receivable) for term life, is lower than a whole-life plan.
Granted, a whole-life insurance plan does continue to provide coverage beyond 20 years and the surrender value will continue to increase, but if you only need this coverage for a short duration of time, these features are not a necessity.
2. You prioritize returns and don’t mind the risk
If, however, you need this coverage for a long duration of time for things like income replacement and legacy, a term life plan may be better for you if you prioritize returns and don’t mind taking on more risk to invest.
As we’ve seen in the Buy-Term-Invest-The-Rest v.s. Wholelife article:
if you intend to be covered up to 70 years old, term life will be better if you can earn a return of more than 4% a year.
If you intend to be covered for a lifetime, term life will be better if you can earn a return of more than 6% a year.
That said, in theory, earning 4, 6, 8 or even 10% a year seems very doable. In practice, it is not as easy as it seems because of discipline and emotional factors that may impede your performance.
Contrary to popular belief, the market does not always go up and there are periods where the market returned 0% return for a long duration.
Unfortunately, the majority of the people out there do not have the know-how to invest and neither do they want to put in the time to learn and do their market research which brings me to my last point.
3. You have the know-how and time to invest
If you need this coverage for a long duration of time AND you have the know-how and time to invest, a term plan might be better for you as you will be able to receive a higher payout and surrender value.
We’ve seen the difference in the payout and surrender value behaviour of buy-term-invest-the-rest and whole-life plans and it is clear that if you have the knowledge, time and confidence to deliver consistent performance of above 4 to 6% return a year, a term life plan will be better for you.
So, there you have it, these are the three considerations to have as to whether or not a term-life plan is better for you.
To recap, if you need coverage for a short duration of less than 20 years, a term life plan is more suitable than a whole-life plan.
If, however, you need long-term coverage of more than 20 years, a term life plan may be better if you can deliver a consistent return of more than 4-6% per year.
All of these can also be found in my eBook: “The Price Of Financial Freedom” which will provide you with a comprehensive guide to help you achieve financial freedom and live life on your terms in the shortest amount of time.
You can download a copy of it for free on my website:
If you do not know how to get started with your financial planning or if you do not have the time to manage your finances or do the necessary market research, you can consider engaging an Independent Financial Advisor who can help you make sense of the market, accelerate your progress and achieve financial freedom by 5 to 10 years earlier!
To find out more information about how you can benefit from my financial and insurance planning services, you can check out what I do on my website here:
Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).
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This article is meant to be the opinion of the author
This article is for information purposes only
This article should not be seen as financial advice
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