What is the difference between term life insurance and whole life insurance?
In this short video Brendan Stoneman of Re/Max Kelowna sits down with Tom Gaymer of Freedom 55 Financial to discuss the differences between Term and Whole Life Insurance and what some of the pros and cons are to consider. We hope you enjoy it and if you have any further questions please don’t hesitate to ask!
Here is the Transcription:
BRENDAN – Hi there, this is Brendan Stoneman with REMAX Kelowna and I’m joined by financial advisor, Tom Gamer. So I know when people are looking at doing their life insurance, they’ve got a couple different options between coverages.
TOM – Sure.
BRENDAN – Maybe walk us through the two different types. What they’re called and some of the pros and cons to each?
TOM – Sure, there’s two main types or two main categories when we look at insurance. So you’re gonna look at term insurance and you’re gonna look at whole life insurance.
BRENDAN – Okay. So let’s break down term insurance then, what are the benefits or potential limitations to term insurance?
TOM – Sure, term insurance is designed to be there for a specific amount of time, so typically you’re gonna buy it in blocks. So you might buy it for five years, 10 years, or 20 years. You can get some products out there as well which are gonna match a particular timeframe, so you can pick the term that you want it for, but it is designed to be there for a set term of insurance, at which point, a couple of things are gonna happen. It’s either gonna expire or you’re gonna choose to then take that on and renew it at a higher cost, or you’re gonna cancel it and rewrite a new one.
BRENDAN – Okay, so cost-wise, how does term-insurance measure up in relation to the death benefit if something happens in that period?
TOM – Cheap as chips, that is the cheapest insurance that you’re gonna get, reason being there are risks on both ends, okay? The insurance company are betting that you’re not gonna die early. It’s not that you are betting you are gonna die early, but you’re betting that the cost of you covering it is inconsequential, it doesn’t matter, so that’s why it’s so cheap.
BRENDAN – So then, let’s flip over to the whole life insurance and I guess how that’s different than the term insurance.
TOM – Sure, so I’ll go back to being presenter again and I’ll ask you a question. What are the two certainties in life?
BRENDAN – Death and taxes.
TOM – Okay, so with a whole life insurance policy, the company knows that they are going to pay up. There is no ultimate risk to them because they know they are gonna pay out. They’re also gonna give you tax-free growth inside of that policy as well. It’s gonna be more expensive.
BRENDAN – Right, so then, there’s obviously some differences between the two, what’s better? Like how do you decide what to do?
TOM – Any sort of decision like that shouldn’t be taken lightly and you should talk to a professional. Speak to them, speak to myself, speak to somebody else in my profession, ask them for advice, see what they say. Typically, you’re gonna get suggested to have a blend of both, a term insurance to cover the bulk of your immediate need and then a whole life policy which is gonna see your duration and that’s gonna cover some of the costs which are always gonna be there. You are going to die at some point and there are going to be costs. What if you died after the term insurance had expired? Those costs are now gonna go to your loved ones.
For great Financial Planning advice contact Tom:
Tom Gaymer
tom.gaymer@f55f.com
250-763-1114 ext. 4244
