Which Life Insurance is Best: Whole vs Term

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There is a debate over which is better: whole or term life insurance. I will start with a true story. Back in 1995, I convinced my dad to cash-in his whole-life policy and buy a term policy. The premise was that he could cash in his whole-life policy, use the proceeds to buy some mutual funds, and then buy term-life insurance for far cheaper. In effect he would create a self-funding system for his insurance. Good theory right? Well it panned out better than expected.

The next 3 years he earned over 25% on average per year. His policy he cashed out was worth around $35,000. After taxes, dad earned around $6,000. His new term policy was only around $1,000 per year. He netted $5,500 over the next 3 years. To date his initial cash out is still paying his premiums and his little kitty would have grown to around $85,000. His insurance policy was for only $100K and by the time he is 75 (when his policy will expire) he should have a kitty greater than his life insurance payout.

The lesson is this:

Buy Term and invest the difference.

I will be beating the street for insurance quotes and model it for you here. I’ve contacted MatrixDirect for quotes on Term and intelliQuote for whole life quotes. (Disclaimer, I don’t get any compensation from these companies. They should though :o)

Once I get the quotes, I’ll model the 2 scenarios.

Stay tuned . . .