My insurance agent keeps telling me term is more expensive then whole life in the short term. Paying about 2.6k a year for whole life with ci and eci. Is is true that term is more expensive? - Seedly
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Seedly PFF 2019

Asked by Anonymous

Asked on 02 Mar 2019

My insurance agent keeps telling me term is more expensive then whole life in the short term. Paying about 2.6k a year for whole life with ci and eci. Is is true that term is more expensive?

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Dawn Fiona
Dawn Fiona
Level 5. Genius
Answered on 03 Mar 2019

The premiums for term insurance increase with age, so your total premiums paid if you have term insurance for your entire life may be higher in total vs. the total sum paid for whole life / limited-pay whole life plans.

So it depends on what you want to cover. Cos not everyone buys term insurance for their entire life - when you're 60+, your parents are likely to no longer be around and your children are already grown up and earning income, so you don't have to support them anymore. Thus many people who buy term would consider to reduce their life insurance coverage at this stage onwards.

Buying term during the stages of your life where you have the highest financial risks and dependents to support = the cheaper option vs. whole life. Even better if you can invest the difference.

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Eric Chia
Eric Chia, Senior Financial Consultant at Prudential
Level 4. Prodigy
Answered on 12 Jun 2019

Hi there, generally speaking, term is more expensive (in the absolute amount of premiums paid) than whole life if any of the following happens:

  • the term plan sum assured is very high, like $500k
  • the term plan is sized to cover you beyond 65yo
  • you are pretty old, like at least 45yo when you receive the quote to buy a term plan

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Allan Lee
Allan Lee
Level 2. Rookie
Answered on 09 Apr 2019

You might want to consider term plan which covers you till age 65 (Means you got to pay premium from the start to age 65) but if you get a whole life plan (You can choose your premium payment term like 15, 20, 25years) then get covered till 99 years old.

One more thing to consider is that term plans do not have any cash value (Anything that you use to pay, you won't be able to retrieve them back if nothing happens to you) but for whole life plan, there is cash value.

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In term of relative cost, it may be true, since you are basing it on cost alone

Example: Term is $800 per month, but if you pay till 65 (assuming you are 30 now), that's 35 * 800= $28,000.

A whole life limited with CI may only cost $1,500 * 15 years = $22,500 and has cash value. But...

Time value of money and investment return is not calculated. Hence why people say BTIR is the best.

A lot of people make this mistake of thinking in absolute terms like this.

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HC Tang
HC Tang, Financial Enthusiast, Budgeting at The Society
Level 8. Wizard
Answered on 25 Mar 2019

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Luke Ho
Luke Ho, Money Maverick at Money Maverick
Level 6. Master
Answered on 09 Mar 2019

That is a very weird thing to say to someone.

For ECI and CI, there does tend to be a cost disparity. If you have Term ECI from the time you're 25 to like 75, for example, there's a pretty good chance you'll have forked out a total sum of money thats higher than a Whole Life plan paid in 15, 20, even 25 years...

E.g. Term was $1000/yr

WL for 20 years was $2100

Total premium paid by age 75 (Term): $50,000

Total premium paid by age 75 (whole Life): $42,000

This actually happens quite a lot for my clients. The whole life becomes very appealing then, because its not only cheaper overall but has cash values and the sum assured scales with inflation decades after you finish paying for it.

But in the short term (1 - 5 years) there's absolutely no whole life plan of the same sum assured, even with multipliers, that can be as cheap as Term. So that's very odd to me. I'm just going to assume you meant long term.

Obviously, there are potential issues with forking out more money upfront, especially if you are an avid, aggressive investor, so it's not all sunshine and roses. If you can beat 6% annualized and you're already quite diversified, most people like that can probably just buy a nice ECI Term and invest the rest instead.

You have an insurance agent already, but you can always PM me for a second opinion.

https://www.facebook.com/luke.ho.54

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Dollar paid vs Cover received

Term offers the highest payout on every dollar you pay.

A proper analysis, review and discussion should be done to identify the life stage you are in and what your concerns and priorities are.

And as answered by Dawn, as Term premium increases with age, when you start buying will also be a factor you should consider.

I think it is unfair to any Term product out there to received such a label. Every product has its purpose.

Having a Whole Life with CI & ECI is important no doubt, but is that the basis for the switch? Have a proper review and discuss. Take control.

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Your insurance agent got problem or trying really hard to earn more commission from you.

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