Suze Orman Gives Her Opinion on Term Life vs Whole Life Insurance
Posted: Sunday, February 07, 2010
by Evan Povich
BaseQuotes Insurance Comparison Site
Love The Suze Orman Show? You may know what Suze thinks about Term Insurance vs Whole life insurance. Here is a conversation with a guest calling in which will shed some light on her thoughts on Term Life Insurance vs Whole Life.
Deepak: Hi Suze! We love your show. My wife and I watch it every week. It's such an honor to talk to you.
Deepak: Well Suze, a friend has recommended that we buy a whole life insurance policy as an investment.
Suze Orman: Stop! Stop! There isn't a friend in the world. Not one friend in the world that if it is a true friend that would recommend you buy a whole life insurance policy. A snook, somebody who wants to take you, somebody who in my opinion is not a friend maybe. But there is no way a friend would do it. Does that answer your question already?
Deepak: It gives me a good sense of what you are thinking.
Suze Orman: Alright, how old are you though Deepak?
Deepak: 31
Suze Orman: How much of an insurance policy? What was the death benefit?
Deepak: Um, I think 50...$500,000.
Suze Orman: $500,000? Alright how much was it per year?
Deepak: Fourteen
Suze Orman: Fourteen Hundred?
Deepak: $14,000
Suze Orman: Fourteen Thousand dollars a year?!?!
Deepak: ...and the idea was largely use it as an investment to put money away to save on taxes.
Suze Orman: Ok, just out of curiousity...made my nose itch. I have to tell you whenever my nose starts to run I feel like Samantha...where I
wanna...you know on Bewitched? I don't know if you were even born back then where I want to twinkle my little and get that guy out or whoever that friend is and off the face of this Earth.Listen, insurance is not an investment. Does this friend of yours happen to sell whole life insurance?
Deepak: Boy it seems like you're reading my mind here.
Suze Orman: Oh sweetheart that's not a friend that a sn....I don't even know %#*#)$! You know, it gives me dandruff I think. Listen, you can get a half a million dollar term policy for 20 years at your age for approximately $25 or $30 per month. OK? That's $300 per year. Now, if you really want to make an investment you could take all those other $1000s of dollars and take that money and invest it where? In a retirement account, a piece of real estate, in stocks, bonds, whatever it may be where it absolutely makes sense to you.
Do you know that I am a licensed insurance agent. A life insurance agent and I am licensed in every single state in the United States except Hawaii because I don't want to go to Hawaii right now to take the exam.
So I have been licensed everywhere. Very few people can tell you that they have that type of insurance background. I can tell you that if you
put $14,000 into a whole life insurance policy, my friend, how much commission do you think I or your friend would make off of that $14,000 deposit?
Deepak: Like atleast a thousand or two.
Suze Orman: Oh, are you sitting down?
Deepak: I am.
Suze Orman: Are you? What don't you try about $10,000. Ok?
Deepak: Wow.
Suze Orman: So yeah, he could buy you...just forget it. Here's the bottom line. Don't do it. Do what I said. Buy a term insurance policy. You can get a half million dollars that way. $300 a year and tell your friend why doesn't he go and make some real enemies.
What is the reasoning behind Suze Orman's dislike of Whole Life Insurance (also known as Universal Life Insurance / Variable Life / Permanent Life)?
With Whole Life and the cost of the death benefit, it is way, way overpriced.
- $500,000 worth of Whole Life Coverage = $14,000 per year
- $500,000 worth of Term Coverage = $300 per year
Are there major differences between Term Insurance VS Whole life insurance?
Term Coverage is sold from 1 year's time to up to 30 years of coverage.
Permanent Coverage is Whole Life Insurance + Investment (held within the life company) and you are supposed to have the policy for the rest of your life.
In regards to Term Insurance there is no investment but it is just like auto insurance = pure insurance. Plain and simple.
It does not make sense to try to combine life coverage with an investment but with whole life coverage it is sold as such. Why would insurers combine insurance and investing?
Permanent Coverage or Whole Life means exactly that. You are paying on premiums for the rest of your life.
1st thing's first. What do you need life coverage for?
You need it to protect your family that depends on the breadwinner's income whether it be the husband working, the wife working or both parents working to bring money in to take care of the family. You need life insurance to replace the lost income if God forbid something happened to the breadwinner.
After the children grow up and start working to make their own income they no longer need to depend on the parents and there won't be much need for that type of coverage anymore.
Do you really want to keep paying premiums for your whole life?
Do not fall into trap of making anyone rich by buying life insurance. It is not likely to happen but it is important to have. Don't throw away your money like that. You are better off buying term coverage only for the time period for which it is needed.
Keep in mind that the older you are the more expensive the premiums are going to be. Only get it when you need it.
Put your money in savings or invest it wisely.
But what about the investment portion when you buy whole life insurance?
It is sold to you as an investment for retirement / children's college fund / emergency fund in which it will grow while being held by the company and you can "BORROW" from it and pay it back with interest.
BORROW from my investment? Isn't it my money?
No, as long as your policy is active you can only borrow from it AND pay the life company back with interest. The money that sits in your whole life policy is called CASH VALUE which sounds great but it's really not great at all?
The real ripoff? You first year of premium payments you get NO CASH VALUE. It is correct. The investment portion kicks in the second year of your policy. The money that you paid to the insurer the 1st year is awarded to the salesperson who sold you that policy. Do you think that it is your money? No. It's their money.
BOTTOM LINE? Listen to Suze Orman and buy Term Coverage only when you need it (ONLY when you have dependents)
Skip the Whole Life Policy and put the difference in savings into your bank account or a retirement account. You control it 100%. Your money fully controlled by you to invest it anywhere you choose or just leave it in cash and STAY AWAY from Whole Life / Permanent / Universal Life / Variable Universal Insurance or any type of life ins that has a savings or investment tied to it.
Take your savings a step further by comparing Life Insurance Quote Term online.
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