The following is my answer to a Quora question: “What arguments exist for whole life insurance over term life insurance?”
Both whole life and term have their uses. Generally, I recommend whole life when the client is younger. If they can afford it, I recommend a limited pay whole life, so they pay for the coverage during their earning years only. When taken early, whole life is cheap. It will never be cheaper than a term plan, but when we calculate the total premium of a whole life plan over the course of the payment term against multiple term plans taken at successively later periods of life, whole life premiums are much cheaper.
Secondly, whole life plans have a surrender value; term plans do not. This makes them a financial instrument that can be borrowed against if it absolutely becomes necessary.
Finally, whole life coverage for the duration of the plan, once incepted, is guaranteed. When a term plan is up for renewal, and there is a claim against it, that renewed term plan may not cover the condition claimed against, treating it as a pre-existing condition. This may not be true for all term plans, however.
Terence Kenneth John Nunis
[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-what-arguments-exist-for.html?m=1 ]
As mentioned in a previous post, while I agree with Terence in principle, I often find myself adopting a slightly different approach, depending on several variables such as:
- time horizon
- other financial commitments and obligations
Hence, a young client may opt for Term life insurance, weighing in the above considerations. Or simply to maximise his insurance coverage at the lowest premium, while still having surplus for other planning needs.
Hereby, creating an insurance portfolio for the client.
Client can choose to convert his Term life insurance to a Whole life insurance later on when he can afford, without the need for medical underwriting.