ANB 34, M, non-smoker here looking to get maybe $200k ECI coverage for life. Would a whole life or term life till 70/75 make more financial sense?

Hi anon,

I'd say that a whole life plan would just make more sense, from my experience.

Hariz has done the maths but I'd just add on one more point: You don't know how your investments will perform.

If you get 6% a year, you still lose out to the whole life plan.

If you get 10% a year, you'd probably beat out the whole life plan, but that's not easy. On top of that, once you retire, you have to keep your funds liquid in the event that CI strikes, and keeping those monies liquid just means you aren't investing them. The whole life's cash value (and by extension, the payout) will just keep increasing year on year as long as reversionary bonuses are credited, while the same can't be said if you are keeping funds in a bank.

And if you get 3% a year, or even lose money on your investments, then you're no better off really.

Often, the fact of the matter is that the total cost of a term plan comes up to be more than that of a whole life plan because you pay a term plan for the entirety of the duration of the plan, and the whole life, while more pricey per year, is paid for a far shorter duration. $50 x 50 is more than $100 x 20, even if you think that $100 is twice that of $50. When you consider the intangible benefit that a whole life plan continues to cover you all the way, it really doesn't make much sense for ECI to be bought on a term. Your numbers may vary, of course, but most of the time, whole life has an edge.

Regardless, when you're down to choosing your actual plan, I'd take note of the scope of coverage (some insurers cover far more conditions for early CI than others), as well as other fringe benefits such as the number of special conditions covered. Premiums would be a consideration too, naturally.

Hi Anon, here are two options. (I won't say the insurer but both options are from the same insurer and have the same coverage terms)

1) Term to 70

200k ECI - 2140/yr for 36 years.

2) 20-pay Whole Life

100k X 2 D/TPD/ECI - 4072/yr for 20 years.

Now let's do the math.

Assume you took the term policy and invested the difference in premiums.

Difference of 1932/yr for 20 years invested at a 6% p.a IRR would give you $71,069.80 after 20 years.

Now since you bought the term you still have 16 more years to pay 2140.

So now we remove 2140/yr but continue to invest the whole amount and earn 6% p.a.

At Age 70 you would have $125,603 and no more insurance.

Had you bought the whole life plan, you would still have 200k in coverage 112k in cash value if you do decide to surrender the plan.

So if you buy term and still invest the difference and earn 6% p.a for 36 years from th age of 34 to age 70, you'd be worse off in coverage than just buying the whole life plan.

So I would recommend the whole life plan anytime there's Early CI involved as Term ECI isn't as cheap as what people think.