Achilles Heel: Term Life vs. IUL & Whole Life Insurance
Unmasking the Achilles Heel: Term Life vs. IUL & Whole Life
Today, we’re diving into the differences between term insurance, whole life, and indexed universal life (IUL) insurance.
This blog is based on a detailed comparison from one of our YouTube videos, which you can watch
here.
The Achilles Heel of Insurance Types
In our recent videos, we compared whole life and indexed universal life insurance.
Now, remember with the whole life, the Achilles heel was that when you die, that cash right is in the policy.
The company doesn't pay that out.
They keep that.
Guess what the Achilles heel of the term is?
The Problem with Term Insurance
The Achilles heel of term insurance is, in my opinion, even worse than the Achilles heel of the whole life.
You lose your death benefit at the end of the term, typically 30 years.
So, after paying premiums for decades, you get nothing.
Term insurance means losing coverage and death benefits after the term ends.
Comparing Whole Life and Indexed Universal Life
Whole life insurance has several drawbacks when compared to indexed universal life:
Higher Premiums
Whole life premiums are about four times higher.
There’s a number of problems if you're comparing them to the indexed universal life.
The problem of the whole life is the premiums are higher.
The minimum premiums are four times higher.
The guaranteed minimum premium of the whole life is about twice as high as the no-lapse premium on the IUL.
Lower Cash Value
The 30-year cash value is about 30% lower.
Lower Death Benefit
The death benefit is around 40% lower.
But when you get to the term, you lose your coverage at the end of 30 years. You lose your death benefit.
Historical Context and Evolution of Universal Life
Before IUL and universal life insurance, people often opted to "buy term and invest the difference" against whole life.
This strategy made sense because the difference between term premiums and whole life premiums could be invested, potentially self-insuring over 30 years due to high-interest rates.
However, with the advent of universal life in 1979 and its popularity surge in 1980, these strategies began to change.
Here’s Why Indexed Universal Life Stands Out
IUL addresses the shortcomings of both whole life and term insurance:
Cash Value Payout
Unlike whole life, IUL pays out the cash value.
Retained Death Benefit
Unlike term insurance, you retain your death benefit.
IUL essentially fixed the problems with whole life’s low returns and term insurance’s end-of-term loss of coverage.
Conclusion
"The IUL just shined in this comparison, and I was really impressed."
- Frank Biaggi
After years in the business, comparing these three types of insurance remains intriguing.
We used the most current policies for whole life, IUL, and term insurance for analysis.
IUL clearly stood out.
Here's why IUL shines in our evaluation:
- Fixed Term Insurance Issues
Term insurance is problematic because you lose your death benefit after the term ends, typically 30 years. After paying premiums for decades, you end up with nothing. IUL solves this by providing a death benefit that doesn't disappear, ensuring ongoing protection for your beneficiaries. - Resolved Whole Life Insurance Problems
Whole life insurance has higher premiums, lower cash values, and a significant drawback where the accumulated cash value isn't paid out upon death. The insurance company retains it, reducing the overall benefit to your heirs. IUL addresses this by paying out both the death benefit and the cash value, maximizing the return to your beneficiaries. - Historical Context and Evolution
Previously, the strategy of "buy term and invest the difference" was popular because it often outperformed whole life insurance due to high interest rates. Universal life insurance, which came onto the scene in 1979, began to shift this perspective. By addressing the major flaws of both term and whole life insurance, IUL presents a modern, more effective solution. - Higher Returns and Lower Costs
Whole life policies require premiums that are four times higher than IUL. Additionally, the cash value after 30 years in a whole life policy is about 30% lower, and the death benefit is 40% lower compared to IUL. This makes IUL a more cost-effective and rewarding option for policyholders.
In summary, indexed universal life insurance stands out by fixing the primary issues found in both term and whole life insurance. It offers comprehensive coverage, cost savings, higher returns, and greater flexibility, making it an excellent choice for those seeking long-term financial security and protection.
Thanks for joining us today. Stay tuned for more insights and expert comparisons.
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Frequently Asked Questions
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What happens if I outlive my term life insurance policy?
You will lose the death benefit and may need to purchase new coverage, often at a higher premium due to age and potential health changes.
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How does the cash value in whole life insurance work?
Part of your premium goes into a savings account that grows over time. This cash value can be borrowed against or withdrawn but reduces the death benefit if not repaid.
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Can I switch from term life insurance to whole life insurance?
Many term policies offer a conversion option to whole life or another permanent insurance without additional medical underwriting, usually within a specified period.
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What is the difference between indexed universal life and whole life insurance?
IUL offers flexible premiums and potential for higher cash value growth tied to an equity index, while whole life provides fixed premiums and guaranteed cash value growth.
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How do I decide between term, whole life, and IUL insurance?
Consider your financial goals, budget, need for flexibility, and whether you want a savings component in your policy. Consulting with a financial advisor can also help.
Biaggi Life LLC excels at matching individuals, professionals, and home and business owners with value-driven insurance plans that sufficiently protect assets and cover liabilities.
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