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How Much More Expensive (Premium-Wise) is Permanent Insurance Than Term Insurance?

By JLP | September 14, 2011

I read this in The Ultimate Financial Plan: Balancing Your Money and Life* in the chapter on life insurance:

“Although the benefits of permanent life insurance exist, the costs must also be weighed. I recently replaced one of my term life insurance policies with a new policy bearing a $1 million death benefit and an annual premium of $465 per year, so in preparation for this chapter I reached out to several life insurance agents to see what the cost would have been for permanent life insurance policies with the same death benefit. The answers? A comparable whole life policy was 20 times more costly—$10,380 per year! The universal or variable life policies would cost around 10 times the amount that I am paying for my term policy. I’d rather control the fate of that extra money than trust a life insurance company to manage it.”

I’m about halfway through The Ultimate Financial Plan: Balancing Your Money and Life* and I have to say, I’m impressed. The main author, Tim Maurer, clearly has the reader’s best interest at heart throughout the book. Good stuff for someone just starting out.

*Affiliate Link

Topics: Books, Insurance | 6 Comments »


6 Responses to “How Much More Expensive (Premium-Wise) is Permanent Insurance Than Term Insurance?”

  1. Jack Says:
    September 14th, 2011 at 3:12 pm

    Whole life policies are generally a rip-off.

    There are a few reasons one might want one, however. The first is an orthodox Jew. By Mosaic Law, only the sons inherit (unless there are no sons). The eldest son get a double share. So, my older son would get 2/3 of my estate, and my younger son 1/3. My daughters (and wife) would get nothing. My daughters would have the inheritance of their husbands, and my elder son would be expected to take care of his mother.

    As a concession to women’s lib, Orthodox Jews buy whole life insurance and name their wifes and daughters as beneficiaries, and even out the inheritance that way.

    Other than that, life insurance is to replace your income. If you are retired, there should be no need for life insurance.

    Does one complain that he pays for car insurance without getting into an accident while he owns the car?

  2. BG Says:
    September 14th, 2011 at 4:03 pm

    Jack said:

    “My daughters (and wife) would get nothing.”

    and

    “My daughters would have the inheritance of their husbands”

    How come your daughters would get an inheritance from their husbands, yet your wife does not get your inheritance? Does your wife get nothing, because you have a son?

    I’m not Jewish, so I’m completely ignorant, and had no idea that there were insurance policies targeted for certain religious customs. Very interesting.

    “Does one complain that he pays for car insurance without getting into an accident while he owns the car?”

    I’m sure people with teenage kids complain mightily about car insurance prices. I’m going to be in that boat next year.

  3. Jack Says:
    September 14th, 2011 at 5:05 pm

    > How come your daughters would get an inheritance
    > from their husbands, yet your wife does not get
    > your inheritance?

    Perhaps I did not phrase that well. As a wife, she would benefit from whatever her husband’s father left him.

    > I’m sure people with teenage kids complain
    > mightily about car insurance prices. I’m going
    > to be in that boat next year.

    With TWO teen drivers, I’m in that boat now. I will not complain if they do not get into any accidents.

  4. Miguel Says:
    September 14th, 2011 at 8:37 pm

    Hi JLP,

    Have been real busy so haven’t been dropping by much – how about them markets LOL.

    I have both term and life policies – about $4mm of term and about $500K of whole life. I have $2mm of the term life because it is pretty cheap thru my employer, and the other $2mm because I wanted portable insurance, in case I strike out on my own and all the fin’l risks that would entail. At this point, don’t exactly need life insurance, it is a luxury, and we have it because I don’t want the Mrs to be in the position of needing to liquidate assets at the wrong time or under any duress, should I meet an untimely end. My mantra on investing is that the last thing you ever want to have to do is be forced to sell at the wrong time.

    The whole life, I got nearly 20 years ago. Not the best investment from a return POV, but it did help me save in a disciplined way, when my saving habits were not so good. Premium gets sucked out of chkg account every month – barely notice it. Got about $60k of cash value at this point. Will probably tell agent to have premiums paid out of dividends, so it will be “costless” going forward (I use the term costless very loosely).

    Slightly off-topic, but what most people don’t realize is that disability insurance is by far, the more important insurance policy to have during your working years, if you had to choose btwn that or life ins. Now THAT is some expensive insurance if you get a portable policy, even if you’re in great health.

  5. Miguel Says:
    September 14th, 2011 at 8:46 pm

    Oh… one more thing. I would be very curious to know what that author thinks of long-term care insurance. My fin’l planner has been pushing it for years, and I am having none of it. Crazy expensive insurance I would not need or use for at least another 20 years… yeh right. Very effective scare tactics though on how nursing homes will cost a gazillion dollars a year in the future and I might be eating cat food some day. I’ll take my chances, rather than hand over a million dollars to an an ins co over the next 20 years and then trust they’ll keep their end of the bargain. At least disab and life ins are for risks TODAY, not 20 years in the future.

  6. Stacey Says:
    September 15th, 2011 at 9:52 pm

    Hey Miguel…great to see you’re (still) among the living pals at AFM!

    We have some whole life: $100K and $50K on DH, $50K and $50K on me with about $80K in cash value from the 4 policies. All were bought in the late 80s. We also have term. Nice to know when we’re old and gray and our term insurance is over, that we have permanent insurance to take care of final expenses…and we’ve never had to worry about becoming uninsurable due to health history changes, etc.

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