Whole Life Insurance Vs Term Life: Suze Orman’s Nose Itches

You may have watched The Suze Orman Show at one time or another

Every now and then a caller asks a question about Term Life vs Whole Life Insurance . Get a glimpse into what Suze Orman advises one caller on the topic of Whole Life Insurance also known as Permanent Life Insurance.

Deepak: Hi Suze! We love your show. My wife and I watch it every week. It's such an honor to talk to you.

Suze Orman: Oh. Thank you! What can I do for you?

Deepak: Well Suze, a friend has recommended that we buy a whole life insurance policy as an investment.

Suze Orman: Stop! Stop! There isn't a friend in the world. Not one friend in the world that if it is a true friend that would recommend you buy a whole life insurance policy. A snook, somebody who wants to take you, somebody who in my opinion is not a friend maybe. But there is no way a friend would do it. Does that answer your question already?

Deepak: It gives me a good sense of what you are thinking.

Suze Orman: Alright, how old are you though Deepak?

Deepak: 31

Suze Orman: How much of an insurance policy? What was the death benefit?

Deepak: Um, I think 50...$500,000.

Suze Orman: $500,000? Alright how much was it per year?

Deepak: Fourteen

Suze Orman: Fourteen Hundred?

Deepak: $14,000

Suze Orman: Fourteen Thousand dollars a year?!?!

Deepak: ...and the idea was largely use it as an investment to put money away to save on taxes.

Suze Orman: Ok, just out of curiousity...made my nose itch. I have to tell you whenever my nose starts to run I feel like Samantha...where I wanna...you know on Bewitched? I don't know if you were even born back then where I want to twinkle my little and get that guy out or whoever that friend is and off the face of this Earth.Listen, insurance is not an investment. Does this friend of yours happen to sell whole life insurance?

Deepak: Boy it seems like you're reading my mind here.

Suze Orman: Oh sweetheart that's not a friend that a sn....I don't even know %#*#)$! You know, it gives me dandruff I think. Listen, you can get a half a million dollar term policy for 20 years at your age for approximately $25 or $30 per month. OK? That's $300 per year. Now, if you really want to make an investment you could take all those other $1000s of dollars and take that money and invest it where? In a retirement account, a piece of real estate, in stocks, bonds, whatever it may be where it absolutely makes sense to you.

Do you know that I am a licensed insurance agent. A life insurance agent and I am licensed in every single state in the United States except Hawaii because I don't want to go to Hawaii right now to take the exam.

So I have been licensed everywhere. Very few people can tell you that they have that type of insurance background. I can tell you that if you put $14,000 into a whole life insurance policy, my friend, how much commission do you think I or your friend would make off of that $14,000 deposit?

Deepak: Like atleast a thousand or two.

Suze Orman: Oh, are you sitting down?

Deepak: I am.

Suze Orman: Are you? What don't you try about $10,000. Ok?

Deepak: Wow.

Suze Orman: So yeah, he could buy you...just forget it. Here's the bottom line. Don't do it. Do what I said. Buy a term insurance policy. You can get a half million dollars that way. $300 a year and tell your friend why doesn't he go and make some real enemies!

Why doesn't Suze Orman like Whole Life Insurance (also known as Permanent Life Insurance / Variable Life / Universal Life)?

Permanent Whole Life Insurance is way too costly for the amount of life insurance one purchases

Paying $14,000 (although not all Whole Life policies are this costly) you only receive $500k of coverage

$500,000 worth of Term Coverage = $300 per year

For Permanent Life coverage you are paying a whopping $13,700 extra .

Is there a difference between Term Life vs Whole Life Insurance?

Term Insurance is for a set term or time period from 1 year and usually up to 30 years .

Permanent Life Insurance is a life policy where premiums are paid monthly for the rest of the insured person's life and there is always an investment vehicle attached to it.

Term Life Insurance = 100% Pure Life Insurance. No investments and inexpensive.

Permanent life ins is sold as life coverage with an investment but it really does not make sense to do so . Is there any reason why life insurance should be added to an investment?

Within a whole life insurance policy they have you locked into paying costly monthly premiums for the remainder of your life.

First of all we need to understand the reason for life insurance?

When there are those in your family that need your income to survive life insurance is paramount . If something happened to that income the family could no longer survive . If something happened to the breadwinner then the life insurance is there to protect the family financially .

The parent(s) income is vital to the children (dependents) who cannot make money to survive on their own . Life insurance isn't important when the children is not counting on the monthly income from the parents any longer.

No one wants to pay a lifetime of high monthly life insurance premiums

You don't make anyone rich by owning life insurance. Don't fall into that trap . Death is not likely to happen while raising a family but life insurance is very important to have. There is no point in buying life insurance for the sake of making someone rich. You're just throwing money away. The right choice is to purchase term life insurance for the time it is needed.

As you get older your term life rates will go up but they lock the monthly rate as soon as you start your policy . Buy Life Insurance ONLY when your family needs the protection .

With the savings you have by buying a term life insurance policy go ahead and invest it or save it in the bank .

Anything good about the investment portion of permanent coverage?

Well, whole life insurance has the investment component which is also known as "Cash Value". Your money goes to the investment and you can then "Borrow" from your own money paying it back with interest .

What is the reason for borrowing the money? Thought it was my own money?

That is how whole life insurance works. You borrow your own money and that loan to yourself is paid back with interest . The investment is called "CASH VALUE" which sounds incredible?

The real ripoff? During the first year of paying high monthly life insurance premiums you receive not one penny of cash value. Yes, that's right . Only starting the 2nd year of paying your monthly premiums will you start to receive any form of "Cash Value" . The first year's premium payments go to paying the life insurance agent who sold you that whole life insurance policy . Your money? Yeah right. Their money .

When you have dependents (children) get term life insurance. If you don't have dependents then you don't need life insurance

Instead of purchasing a whole life insurance policy get term insurance and take the savings and invest it into a retirement account you manage and never have to borrow from . Make sure you have FULL CONTROL of your money to invest or save it anywhere you like . Keep away from Variable Universal / Permanent / Whole Life / Universal Life Insurance or any life insurance that has you placing money into an investment as part of your policy .

When comparing Term Life vs Whole Life Insurance you know have a good idea which insurance type to purchase .