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Physicians Choice: Term Insurance or Whole Life

Thursday, August 03, 2017

Doug Mitchell, CLU
Ogletree Financial Services, LLC

Most physicians take good care of themselves. Knowing how important it is to be healthy and setting the example for their patients leads them to be clear examples of how to take care of oneself. However, it’s always a convenient precaution to assure our beloved ones a stable future, and the best way to fulfil this is by buying a life insurance policy just in case. 

Buying a life insurance policy is surely one of the most important decisions people can make in their financial lives. Whether you have some knowledge of Term Insurance and Whole Life Insurance or not, deciding is never an easy task since it requires careful consideration of your needs, concerns and priorities. 

Once the decision is finally made, it brings a sense of relief and comfort to most people, sadly, this is not an everlasting feeling. It will only last until they have to face the agonizing process of deciding which kind of life insurance to buy.  
Regarding life insurance, the amount of different options can make this process a bit daunting and overwhelming, however, proper recommendations and tips will help you choose right.

Term Life Insurance vs Whole Life insurance 

First, let’s compare these two ways of insuring your life. These two types of insurance are completely different from each other. Some of the most relevant differences between these two are: 

Term Life Essentials

Term life insurance is an inexpensive way to buy life insurance because you are simply paying for the cost of the death benefit. The premium rates will be determined by mortality tables which reflect the fact that the cost of insurance goes up as you get older. Depending on the type of term policy you select, your premium could increase each year, or, it can remain level over the course of the term period.

If the premium levels over the course of the term period then it usually adopts the name of “level term”. This form of term provides a level death benefit and the premiums are leveled out for the term period. In most cases the premiums start out higher than a Yearly Renewable Term policy, the remain is at a fixed quote so in most cases, at the end of the period of time, they can be lower than a Yearly Renewable Term policy held for the same length of time. This policy is best for older people who want to budget for the life insurance expenditures.

Whole Life Essentials

In the case of Whole Life Insurance essentials, the premiums are calculated based on a projected amount of savings to be accumulated over a period of time. While your savings grow, the amount for which the life insurer is at risk decreases, so your insurance costs may actually decrease over time which is how it is able to level your premium.

This type of insurance policy has a much higher initial premium, but the net cost of insurance over a long period of time is mostly lower than a term life insurance policy. Participating Whole life policies also pay a dividend, which is a form of profit-sharing with the policyholders. The dividends can be used to reduce, and also to pay for your premium, this lowers your net cost of ownership even further.  Your savings (also known as cash value) accumulate tax deferred and can be used to supplement retirement expenses.

Whole life is the most cost effective choice for people who recognize that their need for life insurance is more than just temporary and will likely continue in their later years.

Which Ones is the Best Option for You? 

Several factors will influence the selection process between a term life insurance and a whole life insurance. The purpose of the coverage, how long the coverage will be needed, the age of the policyholder, their health status, and their budget are some of these factors that should be taken into consideration.

Knowing that these factors tend to change with the passing of time, it’s not unusual for people to make several life insurance purchase decisions throughout their lifetimes.  And, it is also not unusual for people to own some combination of both term and whole life.

When is a Term Life Policy the Right Choice?

When you have a need for a large death benefit.
When your need for life insurance is for a specific period of time (i.e., until your children are fully grown)
When you have limited current cash flow.
When you are older and have budget constraints (especially after retirement)

When is a Whole Life Policy the Right Choice?

Whole life is the right choice when you expect to have a need for life insurance well into the future (i.e., providing for the long-term financial security of a non-working spouse, a special needs child or business protection)

When you want to own life insurance for the long term on a more cost-effective basis, and your current cash flow can support it
When you are concerned about protecting your insurability for future life insurance needs

When choosing between term life and whole life insurances, all factors need to be carefully considered. While the idea of a low initial premium may seem appealing, the cost of insurance can go up dramatically if, later in life, you find that you still have a need for life insurance. If for some reason, after your term life policy expires, you need to buy additional insurance, you run the risk of not being able to qualify as an insurable individual if your health becomes an issue. At a minimum your premium costs could be much higher if your policy is rated for medical reasons.


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