Life insurance is a vital purchase for most consumers. It helps to protect and provide for loved ones they care about. But buying the right life insurance coverage can be complicated. That's because there are several different kinds of policies available, including term and whole life coverage.
These two broad categories of insurance have some significant differences, with each type offering its own pros and cons. For those who are having a difficult time choosing between them, this advice from Suze Orman on why she believes term life coverage is a better option could be helpful.
The big advantages of term life insurance, according to Suze Orman
Suze Orman has identified a few key benefits of term life policies over whole life policies. These benefits relate both to the specific protection a term life policy offers, as well as the costs of getting covered.
Here are the key advantages of a term policy:
Most people only need life insurance for a limited time
The biggest reason Orman recommends term life coverage for most people is because this type of policy provides all the protection they need.
Life insurance is intended to replace income or services the policyholder provides. The goal is to ensure surviving family members don't suffer a major decline in quality of life. But most people don't earn income forever, and don't have people depending on their paycheck or the work they perform for life. Eventually, people retire and stop earning income. And parents or children who the policyholder may have been caring for will eventually stop needing assistance.
Once no one needs the policyholder's paycheck or the help the policyholder was providing, there's no longer a need for term life insurance. Orman believes consumers can usually determine how long the death benefit would be needed -- such as 10, 15, or 20 years. As a result, most people can just purchase a term policy that offers protection for that period.
Orman does acknowledge there are exceptions, though. In situations where permanent insurance is needed -- such as for special needs children who will always require care -- she believes a whole life policy may be called for.
Term life insurance can be much more affordable
The other big reason why Orman believes term life is a better option is because it can be less expensive. As she makes clear, "premium costs will be so much higher with a permanent policy," while term life coverage is priced within reach for the vast majority of consumers.
Orman warns that many people are steered toward a whole life policy because the finances can be better for insurance agents who are usually paid larger commissions for selling permanent insurance. But, while agents may prefer consumers buy whole life coverage, consumers are better off with a less expensive term policy that offers the protection they need at a price that's far lower.
The good news is, Orman also goes on to explain that it's never been easier to shop for coverage since it's possible to get quotes online. Consumers buying life insurance can compare term and whole life policies online, weigh the pros and cons of each, and make a fully informed choice about whether to listen to the finance guru and opt for term life coverage.
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FAQs
As far as life insurance goes, term life insurance is generally the better option. Premiums are much cheaper, and most people don't need life insurance to cover them their entire life. Pick a term life policy that will last for as long as your family will be relying on your income, and you're good to go.
Does Suze Orman recommend term or whole life insurance? ›
Suze recommends that you should get term life insurance and continues to add that most people should get a 20 year term policy.
Why do many experts recommend term life insurance over whole life insurance? ›
Term life is just insurance, whereas whole life adds a cash value component that you can tap during your lifetime. Whole life premiums can cost five to 15 times more than term policies with the same death benefit, so they're not a good fit for everyone.
Why is term life insurance better than whole? ›
Cash value? The pros and cons of term and whole life insurance are clear: Term life insurance is simpler and more affordable but has an expiration date and doesn't include a cash value feature. Whole life insurance is more expensive and complex, but it provides lifelong coverage and builds cash value over time.
What is a main advantage of term life insurance over permanent whole life insurance? ›
Term life insurance is cheaper than whole life and covers you for a set period of time. Whole life insurance typically lasts your entire life and can build cash value, which makes it a more complex and expensive product.
Should seniors get whole life or term life insurance? ›
Term may be unavailable or too expensive
Because health risks increase as you age, term life insurance may become unaffordable. Some companies do not sell term life to people over a certain age. This often makes smaller whole life insurance policies for seniors a better option.
At what age should you stop buying term life insurance? ›
Life insurance can provide peace of mind at any age, but isn't always necessary after age 60. To see if you need life insurance, assess your family's needs, your financial resources and assets, your outstanding debts and your long-term financial goals.
Why does Dave Ramsey not like whole life insurance? ›
1. Fees, fees, fees. For every $100 you invest in whole life insurance, the first $5 goes to purchasing the insurance itself; the other $95 goes to the cash value buildup from your investment, Ramsey says. But for about the first three years, your money goes to fees alone.
What is the main disadvantage of having whole life insurance? ›
A more complex product than term life insurance. Higher premiums than term life insurance.
What type of life insurance does Dave Ramsey recommend? ›
Wondering what Ramsey teaches about life insurance? This article covers all the types, but let's cut to the chase: we always recommend buying term life. In particular, you want a policy that lasts 15 or 20 years with coverage that's 10-12 times your annual income.
For people with long-term financial goals that include providing a death benefit for their beneficiaries, whole life insurance is worth considering. While premiums may be higher than term life insurance, the lifelong coverage provides the necessary coverage along with the potential for cash value growth.
What happens if you outlive your whole life insurance policy? ›
What happens when a whole life insurance policy matures? Most whole life policies endow at age 100. When a policyholder outlives the policy, the insurance company may pay the full cash value to the policyholder (which in this case equals the coverage amount) and close the policy.
What life insurance never goes up? ›
A whole life insurance policy has fixed premiums, meaning your payments to maintain your policy will never go up. As long as you continue to make premium payments, you're covered for life.
Who needs whole life insurance? ›
Whole life insurance is good for people who want lifelong coverage, premiums that don't change and a cash value component. Your beneficiary will get a life insurance payout no matter when you die, as long as you've paid the premiums needed to keep the policy in force.
What type of life insurance does Suze Orman recommend? ›
Consumers buying life insurance have a choice between term and whole life policies. Suze Orman recommends term life policies. Term life can be a cheaper and better option for many people.
When should you switch from term to whole life insurance? ›
When to convert term life insurance. You must decide to convert your term policy to whole life insurance before the original policy expires. It's best to make the change when you realize your circ*mstances are going to change or you need coverage longer than you first thought.
What does Dave Ramsey say about term life insurance? ›
Wondering what Ramsey teaches about life insurance? This article covers all the types, but let's cut to the chase: we always recommend buying term life. In particular, you want a policy that lasts 15 or 20 years with coverage that's 10-12 times your annual income.
What is the best term life insurance according to Dave Ramsey? ›
It means that Zander is the only company Dave and the entire Ramsey team recommend for term life insurance. Why? Because Zander has faithfully served our fans for two decades and will do whatever it takes to help you win. They offer the coverage you need and nothing you don't.
