Term vs. whole life insurance... which is better?

I am finally taking my dad's advice and getting some life insurance. Which is better? Term or whole life?



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No one life insurance product is better than the other and you'd be best served to talk with a specialist who can help you to determine what is best for you based on a variety of factors.


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It all depends on what you want. You get term life insurance strictly for the protection / death benefit that you would want your beneficiaries to receive should something happen to you.

Suze Orman suggests an old school train of thought where you buy term & invest the difference. There's nothing wrong with that as long as you are confident you can make 5% after-tax doing investments. Keep in mind, the last 10 years, stock market has averaged returns of 4%. Take out taxes and that return isn't enough to even keep up with inflation. Unless you can really say to yourself that you're investment savvy, "term and invest the difference" probably isn't the best option for you.

Now with whole life, you get it if you think you're going to live a long life and want the "living" benefits that a whole life policy can give you. I'm not talking UL/VUL policies. I'm talking strictly permanent WHOLE life insurance. The cash value accumulation will be affected by which company you buy the policy from since not all WHOLE life policies are the same and also how much you plan on saving per month for your policy.

Now you could save the amount in a savings account, yes. But you will be paying taxes on any interest gains compared to tax-deferred growth you can receive in a whole life policy. In addition, in today's market, interest rates on CD's and money market accounts are laughable.

If you get a whole life policy from a company such as Northwestern Mutual, TIAA-CREF, or New York Life, you can expect after-tax returns on average of 5%. These 3 companies have the highest possible credit ratings an insurance company can receive out of the 1200+ companies that are out there and because of our financial strength, NYL (the largest, oldest, & strongest mutual/private company) for example has paid a dividend to our policy-holders for the last 160 years. What does that mean to you as a consumer? It means the likelihood and peace of mind knowing you can get an average after-tax interest return of 5%.


This is a great site to get life insurance quotes from.