TERM VS. WHOLE LIFE

The current life insurance plans offered employees of the University of Florida involve term life insurance. This new life insurance plan offers whole life protection. Both term and whole life insurance policies provide protection upon the death of the insured. The two vary considerably in their objectives, premiums and living benefits. If the age at death could be determined well before its occurrence, determining which kind to purchase would be simple. This almost never is the case.

Term Objective

The objective of term insurance is generally viewed as protection against a temporary risk. A simple example involves a loan with a definitive payoff date. You may want to purchase a term life insurance policy to provide the liquidity to repay the loan upon your death.

Whole Objective

With whole life insurance the objective is to provide protection for the whole of life. It is designed to be permanent and to be there whenever needed.

Premiums

The premium for term life insurance starts out very low. After a period of years (often after the first year) the premiums increase. This increase is also progressive. After several years it can become very expensive. Eventually, the premiums become so large they are often not affordable. When this happens, it is said, "you have outlived your life insurance."

The premium for whole life insurance is initially greater than that required for term insurance; however, the premium will not increase. It will remain at the same initial rate.

Renting vs. Buying

It is often said that with term insurance you are renting and with whole life you are buying. Many people plan to buy term insurance and invest the difference between that premium and the whole life premium ("buy term and invest the difference"). Unfortunately, many times they "buy term and buy a big screen TV". Then, when the term premium becomes unaffordable, they do not have any insurance (often when they need it most). Again, whole life is designed to be permanent.

Additionally, permanent insurance is the only kind of life insurance that provides living benefits. You have access to the available cash value. This can be used for whatever need you may have (for example, to help fund the cost of college or to supplement retirement income). As discussed elsewhere you may also elect to convert your policy to a reduced paid-up policy.

According to a Penn state University study involving over 20,000 term policies representing $4 Billion of coverage, only 1% resulted in death claims, most were terminated before death occurred.

When deciding whether to buy term or whole life consider the following:

• 90% of all group term life insurance vanishes or is dramatically reduced at age 70
• 43% of all life insurance is Group Term Life
• Only 13% of all death claims are paid from Group Term Life
• 56% of all employees at age 65 have no life insurance coverage of any kind
• 80% of all present active employees live past 65