Term or Whole Life for coverage for Early & Late Critical Illness?

Hi anon,

If you get CI coverage via a term plan, you will have to ask yourself how long you want to cover yourself for. This may be tricky. What if you get coverage till 70 but something happens at 71?

But maybe let's just look at some numbers first for term and whole life. Let's look at some quick quotes, both from the same insurer.

So let's say you take a term plan cover $200K ECI, and you're a male non smoker, 32 years old turning 31.

A quick quote gives a term plan covering this amount costing $2036/yr for 37 years. That's $75332 in total.

A whole life limited payment (20 years) plan with x4 multiplier (i.e. $50K x 4 = $200K ECI cover till age 70) would cost $2840.5/yr or $56810 in total.

Yes, you didn't see that wrongly. It's actually cheaper in total, and the coverage is the same till age 70. After 70, on a whole life you still retain $50K of ECI cover plus all bonuses that have build up in the policy over the years. Or, should you desire, you could just surrender it and take back the cash value.

Sure, it's more costly by about $800/yr, but people often overlook total premiums when looking at a plan. After you turn 52, you're done with the whole life premiums before you retire, whereas you'll have to continue to pay for the term.

On top of that, if you buy term and invest the rest, then you're going to have an uphill battle trying to ensure that you have $50K - $80K of liquidity in risk-free assets when your term plan expires at 70 in order to match the benefit that a whole life plan would provide.

So if you really want CI/ECI cover in retirement, a whole life plan isn't a bad idea at all.

Lastly, a question to ponder is this: Which is more expensive, paying the premium of $2800+/yr, or not having the $200K payout to address your financial obligations (living expenses, bills, treatment, etc) in the event an early CI disrupts your entire life?

If you know you will never ever have dependents, then you don't need to be insured with life + CI, technically, because you are not a "burden" to anyone. What you need is a hospital plan + rider to cover your hospital bills.

If you may have dependents in the future, then you will need your life + CI coverage.

But, whole life insurances are for people who:

1. Want to leave a legacy

2. Want to be insured until death

3. Don't know how or don't want to save up or invest for later years

Whole life insurances are much more expensive in terms of coverage per dollar in premiums. If you just want coverage during the period when you have dependents, get a term life insurance.

Lastly, early CI coverage is very expensive. Assess the following to see if you really need it:

1. Your family medical history

2. How frequent do you go for checkups

In addition to looking at CI and early CI riders, consider taking a look at standalone CI plans.