65 Life Insurance Vs. Term Life Insurance?
Posted July 28, 2009 – 4:47 am in: term life insuranceMy wife and I currently have 65 life insurance which we pay about $130 per month for the two of us. After listening to her friend Suze Orman she wants to get rid of the 65 life and get term life insurance. 1st question is what do you think is better and 2nd is how easy is it to settle your current life insurance to cash out and if you stay with the same company can you roll your current $value into the new term life?
Thanks
5 Comments
I would caution you about canceling your current 65 life insurance just because Suze Orman said so. I would look at the tax implications and the current cash value before you simply surrender the policy, take the money, and purchase a new term policy. Depending on your age, it might actually be cheaper to simply pay the 65 policy rather than cash it out for a term policy. Look at the cost of term and the current cost of your 65 policy and see what works best for you.
To answer your first question, which policy is better term vs. permanent: it depends. There are some agents out there that only offer their clients permanent. There are also the Suze Orman’s and Dave Ramsey’s that say you should ALWAYS buy term. My answer is it depends on your finances and your individual situation. If you are 30 years old making $90K/year with a mortgage, 2 children you want to put through college, car loans, student loans, etc, term is likely the better option. Why? It’s cheaper and most of your exposures are debt related, which will hopefully be solved in 20 or 30 years. In that scenario, I happen to agree with Ms Orman. Where I disagree with her is when she says permanent insurance is NEVER a good option. If used properly, whole life is a great way to ensure your heirs receive your entire estate (and maybe more). Here’s a scenario where I think term is not the best option and whole life is better: You are in your 50s with no debt and currently have done an excellent job funding your retirement accounts along with other investments (CDs, mutual funds, stocks, maybe real estate, and you might even be a business owner). You may have a large estate. This is a perfect example of when permanent insurance can pay for estate taxes. If the total of your investments equals, say $3 million, your beneficiaries may not receive the full amount (this year and next year excluded). Why? Because they have to pay the estate taxes on everything. Permanent insurance can be a great way for a person to cover estate taxes. Term would be a horrible way to cover this expense. Why? You don’t know when you are going to die. You might die next week, you might die next year, you might die when your 85. If you purchase term and you live past your term, you are going to have nothing to show for it.
To answer your second question: It is fairly easy to cash out your current cash value into term. This is something that can be done in a matter of weeks.
One final note, before you cancel anything look at the cash values and the cost of term. Also look at why you bought the 65 life insurance. I watch Suze Orman as well, and I actually like her lessons on finances. The only area I disagree with her is on the life insurance portion. Why? Because everyone’s financial situation is different. When she tells someone never to buy permanent, that advise is probably only good to about 30% of her audience. It’s like if you told me that you had a headache and I said “Well, you have a sinus infection. Go to the doctors office and tell him you have a sinus infection and that you need a prescription for a sinus infection. Don’t let him examine you and don’t let him give you advice, because doctor’s make a lot of money off giving advice. Just get the office to write you a prescription.” What are the chances my recommendation is appropriate for you? Slim. Might you have a sinus infection? Yes. Might it just be a headache? Yes. Might it be something more serious? Yes. What I am trying to say is that everyone’s situation is different. When someone gives a broad recommendation, like the advise Suze Orman gave, she only has about a 30% chance of getting it right because everyone is different. Look at your scenario first before you make changes. It might be appropriate for you to purchase term, it might not.
There isn’t close to enough information to give you a good answer here. My best answer is don’t rush into anything. Take your time to figure out your best option. Suze uses a one-size-fits-all approach and I’m guessing your doctor to do that. I would also recommend meeting with an independent insurance agent to help you with this decision.
To answer your questions a bit. Cash value can’t be put into a term policy but can’t be used to purchase it if done correctly. Depending on your age the biggest caution I would give you against term is it can be expensive as you get older. Also, do you know when you’ll die? If you do make sure it’s within the term of the insurance. Permanent insurance, when set up properly, is an extremely strong financial tool.
Please let me know if you have any questions.
Let’s see:
Suze Orman doesn’t hold a life insurance license OR a securities license. She’s looked at like a buffoon by the professionals in the financial services industry. Her one-size-fits-all mentality is WORSE than any product she disagrees with.
The first poster works for Primerica, a multi-level company who because they ONLY offer term insurance, train their reps to parrot the same misleading non-sense. We can spot them a mile away.
You need a professional, not a part-timer, to evaluate your options. Don’t make any impulsive decisions just because an entertainer told you so.
Chris, you need to find a new agent. Putting you in whole life is an unconscionable act and was done only to line his pockets. Find a agent who sells term only. Whole life is NOT a good savings plan – ever. And even when/if it builds full value, when you die you don’t get that money inside the policy. It is the biggest rip off in the world. I hope I was not unclear. It is easy to cash out, but your agent will try to talk you out of it.
i had universal life for 23 years. it was supposed to be worth $100000 when i turned 65. i cashed it in at age 63 for $25000.