Question

A 28 year old individual determines that they need a $500,000 life insurance policy, would like a savings component of the same, and be able to retire at age 67. Should the individual choose a whole life or term policy? Describe the key features of both policies and why and how you reached your conclusion. response should be at least 500 words

Answer 1

Whole Life Insurance (WLI) Policy-

This is the simplest form of permanent life insurance and includes lifelong protection with guaranteed premiums, death benefit, and cash value. It is more expensive then term insurance but guarantees return until the person dies or the policy is cancelled.

Positive features of WLI-

1. Fixed premiums that does not changes

2. Guaranteed death benefits

3. Annual dividends that can be used for premium

4. tax advantages

5. Cash Value accumulation that grows

Several limitations can be associated with WLI policies including but not limited to paid up additions rider, Long Term Care Purchase Option or disability Waiver of Premiums Benefit. These

Term Life Insurance-

it is temporary and cost effective coverage with the opportunity change based on your needs. It has following features-

a. Affordable and maximum coverage

b. To cover specific obligations like expenses for medical

c. Provide guaranteed protection for 10,15, 20 years.

d. It can be renewed after the original term period expires, but the premiums will be higher.

Term life is much more affordable and cheaper than the WLI because term life does not provide any benefit unless specific obligation occurs e.g. death, medical etc. WLI provides coverage both during and after death.

Hence, considering the fact that individual needs investment in life insurance to have savings component, it is advisable to opt for WLI as term life has no value or savings component.