Whole Life vs Term – Why choose when you can use both?

in life, we are bombarded by advertisements and requests to insure this and that. one of the most advertised products is life insurance. Whether it appears as accidental death coverage, credit protection coverage or even mortgage insurance – the one product remains: it is coverage that pays someone something when you die.

Those that have access to a group health and benefit plan have life insurance for them and often their dependants that is inexpensive and thus reasonable to them. I believe that this coverage is an excellent supplement to whole life coverage because it either takes the place of a term policy or compliments it (i will write more about this another day).

Many people don’t think something is necessary until it is brought to their attention – i am one of them. In fact, i didn’t have life insurance coverage until my late 20’s , when as per the norm i purchased a house with my then wife.

The bank requested coverage for my mortgage – in the form of mortgage insurance, and I as a life insurance trainee, knew not to get that coverage but the reasons were vague.

i now know that the mortgage insurance coverage offered on these types of contracts are limited to the amount of the mortgage and decrease over time while the costs increase. I also know now that the beneficiary is always the lender and that the coverage is actually not guaranteed because the policy is underwritten (i.e. you are qualified for the policy) at death – not cool!

So what does one do? Let’s say you are young and have no assets. You don’t need coverage right? Maybe, maybe not! Think for a second. You are young now but one day you will meet a partner, probably settle down, buy a house, perhaps get married and have kids.

Does it not make sense to plan ahead and get some products while you are at your healthiest and thus at their cheapest? We shop around for everything  – some even go to great lengths to save $0.02 at the gas pump (maybe $5 on a tank)!

The same goes with Life insurance coverage  – get it when you don’t need it because it will likely be cheaper!

Term and Whole life – mutually exclusive or combined?

To put it simply, term coverage is a contract that spans a limited term. You can have term 10, term 20 etc (10 years, 20 years long).  Whole life insurance is coverage that spans your whole life (sometimes until age 100 where they cut you a check for the balance and say congratulations!)

Term insurance is much cheaper because it protects you for a limited time, usually in the years where the chance of death is slim to none. Whole life on the other hand assumes that death will occur in the later half of the policy where is costs more to insure a person (higher chance of death) and thus attempts to spread the premiums over the lifetime of the policy.

Using these two types of policies, you can ensure long term goals for yourself (and partner or kids if you have), and meet short term life insurance obligations.

For example:

if you have a $300,000 mortgage …  you can quite easily get a $300,000 term insurance coverage. Over time, your mortgage goes down and after 20 years the coverage can stop. But in that 20 years, your responsibility increases, you have kids, a bigger house, cottage etc.  What about when all that is done and you no longer have insurance?

Here is a quick solution to consider:

$50,000 whole life coverage + $450,000 term life.

The term life is nominally more expensive, will likely be renewable and convertible to whole life (for that day you need more whole life and can afford it). The whole life would be much cheaper at younger ages vs older ages and ensures that if you qualify, you have coverage to help with funeral costs when your time arrives thereby lifting the burden from your grieving family.


Remember, that no matter which way you structure your life insurance policies, you can never guarantee that you will be healthier than you are today!


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