Life Insurance Explained - Term Life Insurance vs Whole Life Insurance

It's going to cost about $10,000 to put you in a box or an urn. My name is Carmen and I'm Darius and welcome to the Wealth Nation channel. While financial freedom isn't just a dream, it's a reality. Now, what we want to cover in today's video is the difference between whole life insurance and term insurance. There's a big difference between the two. One lasts forever or at least till you die. And one is just rented insurance. Yeah. And we want to debate about this, right? Because there is so much stuff out there on the Internet between what you should get and everyone's opinions. And we're just going to talk about the facts. We're not going to give you our opinions. We're just going to tell you this is this, this is that. And you make the decision. Now, either way, we can serve you here at the Wealth Nation channel because we are licensed agents and we can help ensure that you get the right life insurance product for you. So let's dive into it. Term insurance is temporary insurance or what Darius said is rented insurance. Term means that you're going to get life insurance for a specific period of time. Call it 10 years, 15, 20 years, whatever it is. But you have to know that outside of that term, 10, 15 or 20 years plus, right? You're done basically with that life insurance. So you have rented it like a tuxedo for however long you need and that there really isn't going to be any changes as far as the coverage. What I mean by coverage is, let's say that you buy a policy that's going to give you five hundred thousand dollars in death benefit. Your death benefit is going to be five hundred thousand dollars for that term. It's not going to go up. It's not going to go down. It's just it is what it is. Right. And you're going to pay a smaller price on that term insurance because it is insuring you for a specific period of time. It is not going to be on board your entire life. That's why term insurance is cheaper. Now, what are the pros and cons to term insurance? The pro is that it's super cheap. The con is that it's not on board. When I say on board, it's not going to cover you for your entire life right now. Here's a little caveat when it comes to term life insurance is the fact that you won't be able to get insurance after a certain age and some insurance companies will limit on how much term you can have up to, let's say, for example, age 85. So let's say that you're 65 years old. You won't be able to get a 30 year term. You can only get term up until the age of 85. So there is a little discrepancy, I would say, in the fact that a lot of people are living longer. People that are taking care of themselves are living longer. We're not talking about the ones that are out there doing hang gliding, skydiving and racing motorcycles. You want a whole different category altogether when it comes to life insurance, but for the most part, the average American is living a lot longer. And for those of us that have term insurance, we won't be able to have coverage in those ages where we are most likely to pass away. That's a very good point, because back in the day, things were different, right? We maybe lived to our 60s and 70s, but we were living much longer than before. So that's something that you need to consider. The other thing to know about term insurance is that the policy doesn't grow with you, meaning that what I talked about before, that 500000 dollar death benefit, if you need more coverage, you're going to have to apply for more life insurance. Why would you need more coverage is because let's say that your income increases, right? You bring on more assets. You have more things that you want to be covered financially when you pass. That means that you're going to have to get more insurance because that 500000 dollars doesn't move. It doesn't change. So that's something that Darius and I are always thinking about for ourselves personally, because we know that our income is going to change over the course of our career and we want to make sure that we still have enough life insurance to cover all of our financial needs. Wealth Nation, do you need life insurance? If so, click on the link below so we can get you some insurance. Now, back to the video. Well, yeah, because here's here's the thing. I think a lot of people get insurance term insurance, whole life insurance, confused with final expenses, term insurance and whole life insurance is more than just death benefit for your burial expenses is to take care of those assets and expenses that you have right now for so your family don't have to worry about it. So let's say you have a house that needs to be paid off that your family can't afford without you. Well, that's where that term insurance policy comes in. As a matter of fact, before purchasing a new home, you have to have some insurance in place in order to purchase that home. So life insurance, you have to have life insurance in place. Right. So you want to have life insurance to take care of the assets that you have so that they can maintain being able to produce cash flow after you've passed away. Now, with that point, I'm glad that you said that, because the other thing that I don't want people to misunderstand when buying life insurance is they tend to just cover the needs, right? Like, oh, just make sure that my house is paid off. Well, you have to consider if you and your partner are both income earners, then just paying the house off may not cover your financial needs, right? There's still a ton of maintenance that goes on with the house. There's probably education for the children. Any other future expense that's going to come up in the next five, 10, 15, 20 years. You also have to be forward thinking and thinking bigger than just let me make sure that the house is paid off should something happen to you. Because your income right now, whether or not you know it, is a huge asset to your family. And just because the house might be paid off doesn't mean that they will still miss your income. So definitely don't under insure yourself, because what we know is that 50 percent of the U.S. population does not have life insurance. And of the 50 percent that does have life insurance, 30 percent of those individuals are underinsured, meaning they don't have enough life insurance to cover their family's financial needs. So definitely do the math, figure out how much is your mortgage, how much is tuition going to cost for Jimmy and Susie? You know, think about all of those things and make sure that you have enough death benefit to cover all of those unforeseen expenses. Right. So if you have zero insurance right now or your employer has all the insurance, get you some term insurance because that's the cheapest, most inexpensive insurance that you'll get on your life. Now, for those of us who want life insurance past the age 85, whole life insurance may be something that you that you want to look into. Matter of fact, whole life insurance policy is one of those assets that don't get talked about very often. And the people that do talk about it say, oh, this is horrible to buy whole life insurance. Well, the reason why it's not being talked about, because it's not a sexy thing to talk about. And a matter of fact, most wealthy people as a part of their financial assets that they do have, whole life insurance plays a huge part in that. When you talk about when we think about the financial advisors and what they recommend to high net worth earners, because here's the thing, the whole life insurance, the death benefit increases over time. So every time you make a premium payment, you have more death benefit that is getting added to that whole life insurance policy. That doesn't happen with term. The second thing with whole life insurance is you have a cash value component that grows along with that policy as well. Now, the cash value isn't a big deal if you don't use it. If you don't borrow that money or draw that money, it basically does nothing for you. It just sits in your policy. Now, that's where a lot of people that misunderstand whole life insurance, that's where they get caught up. Yeah. Now, check out this video right here where we talked about how we use how we borrowed from our whole life insurance policy, a simple interest to invest in a mobile home that's producing income for us on a monthly basis. Now, that's one of the benefits of using whole life insurance while you're alive is the fact that you can borrow money and you can use it to purchase assets that's also producing income for you on top of the death benefit that you can get if you were to pass away. Yeah. Now let's talk about the pros and cons with whole life insurance. So the pros, like Darius mentioned, is it covers you for your entire life. So as opposed to term insurance, you don't have to worry about continuing to get coverage when your term runs out. The other pro that I would say about whole life insurance is it provides you with other benefits where term does not. Now, the con to whole life insurance is that it is considerably more expensive than term. But again, it's where you have to understand what is the product that you need and what product is going to serve you. So if you want something that just kind of quick and dirty and covers the basis, get term insurance. But if you want something that's maybe a little bit more robust and provide you more options, like having cash that grows inside of your policy that could mimic almost like using your savings account for investing, then you know that you could probably look into a whole life insurance policy because it gives you something more. Right. And, you know, the fact that you said that, I would say that's a con to it because it's more complicated. Yeah, it's more complicated in term. Term is just you pay it and forget it. You said it and forget it. But don't forget it, because after 25 years, you're going to make sure that you still have a letter and tell you that, hey, if you want to keep this term, it's going to be a hundred times more than what it was when you first started. Not a hundred. But that's the con to term insurance is that when your term runs out, the the the premium will triple, quadruple the price because it is considerably more expensive because you have to think about it. If you get term at 25, you get a 25 year term. And now at 50, you are much more expensive to insure. So that's what you have to consider with term insurance is every time it runs out, you're older, it's going to be more and more to insure you. And you may or may not be insurable at 50, depending on what happens. So that's the risk that you run with term insurance. Now, what we hear on both camps, right, because there is so much drama between both camps of term versus whole life insurance, and it doesn't have to be this way, folks. Right. So a lot of people say you should buy term insurance and the money that you would spend in a whole life insurance policy, you should invest the difference. Yeah, that's fine and dandy. The reality of the fact is we don't find many consumers actually do take that action to invest. So a lot of that money just gets wrapped up in consumer spending. Yeah, and I think the idea there would be to keep your money and use somebody else's money to invest. Like the example that we showed you here, where we talked about borrowing money from the insurance company while our money sits safely. And then on the other side of the camp, people say that whole life insurance is a poor investment. And I don't know why, for whatever reason, people started associating whole life insurance with an investment because in the title it says whole life insurance, it doesn't say whole life investment. So there's just misinformation that's out there on the market between both sides. And now we'll share our personal perspective on how we leverage both products to accomplish basically what we like to do. So with Darius and I, we recognize that savings was a huge component to our financial success. So we started taking the money that we would be saving and putting it towards the premium of a whole life insurance policy. Why? Because we wanted our savings account to be able to do a few things for us. Give us a death benefit and provide us liquidity. And that's what a whole life insurance policy as a basic form can do for you. Whole life term. Which one you want? We can hook you up. Click on the link below. The alternative to that is having our savings sit inside of our savings account. And the reason why we decided to go in this different direction is because our money sitting in our savings account loses 7 percent in inflation. The reason why we decided to do that is because our savings loses 7 percent in inflation every year. And as you know, lately, inflation has been a huge problem. So one of the things that we decided to do is we didn't want to have to deal with that. So what we opted to do is save our money in a different vehicle. Yeah. And that's all we did because we recognize if we're going to save ten thousand dollars a year, let's just say at the start, instead of just having ten thousand dollars a year in a savings account, we could move it over to a whole life insurance policy and we could have, you know, five hundred thousand dollars of death benefit and we could still have cash that's available. So now we're killing two birds with one stone. That was a value to us. Now, term is something that we have been having a conversation on more recently. And that is because as we recognize that our income goes up, we can leverage term to buy now while it's cheap and we're young. And then when it makes sense for us to convert term because term can be convertible, we can convert term into a whole life insurance policy and that will protect us for that. That that insurability that we have at the time, meaning if we buy a term life insurance policy for a million dollars in death benefit, we can convert that million dollars of death benefit into a whole life insurance policy in the future. So we're able to to use the system in a strategic way where we can have both products on board to do what we want it to do. And at the end of the day, our value in life insurance is making sure that we have as much coverage as we possibly can get to ensure that our family can can be trust fund babies. Right. That's our goal to create enough wealth in our family where we can teach them how to continue to create cash flow for the next generation. Right. And two points that I want to make with the comments, which was laid out very perfectly. We want to increase our death benefit to the maximum amount because we want to be able to purchase cheaper insurance for our daughter. Yeah. And what buying term insurance allows us to do is because it's significantly cheaper in our daughter's whole life insurance is also significantly cheaper. We can buy more insurance on her to get her up to the level where we are at a cheaper rate, knowing that she'll have this for her entire life. Our daughter's three years old now. Exactly. And we want to get her as much insurance as we possibly can that the life that the life insurance companies will provide, because, again, this is a strategic place play for us with it when it comes to life insurance in general, and we want to be able to buy life insurance as cheap as we possibly can while we are all still young so that our heirs can have a ton of death benefit at their disposal that would be passed to them. Now, the second point that I wanted to make is the fact that it's not all about this passing on this death benefit. It's about passing on the information that goes along with it, because it's one thing to have a ton of money that you inherit. It's the second thing to not know what to do with it. So what we have to do for our family and our beneficiaries is we have to share the information that we're learning and how we're using the funds. Even if we buy a term insurance, be it term or whole life insurance, what needs to come along with the fact of who we're choosing as a beneficiary is information on how to continue the passive income that we've created with either buying term and investing the difference or borrowing from a whole life insurance policy to invest in assets. Information needs to come along with the insurance policy on how we expect to maintain our income for the next generation. Now, Wealth Nation, we know that we have shared so much information with you. And to recap, we want to make sure that you understand the pros and cons between choosing life insurance products. When we talk about temporary insurance, we're talking about term insurance, which is going to be cheaper and be super simple. However, you need to know that you are going to need to renew your term insurance when your term is up. And we are assuming that you are still insurable by that time. However, what you can do is if your budget is tight, but you still want life insurance, get term insurance and then convert it into whole life insurance when the time makes sense for you. Now, the caveat to that is you have to make sure that you buy term insurance with a larger mutual company in that instance because you can then convert term. If you buy term insurance by just a term carrier that doesn't have whole life insurance, for example, you won't be able to convert that product. You can only convert it within the same company. Exactly. Now, with whole life insurance, if you want a product that is going to be on board for your entire life and you don't have to worry about renewing life insurance here and there, then we would recommend whole life insurance for you. You also know that whole life insurance is going to be more expensive because it's insuring you for your whole life and because or until 121 years. Thank you. Whichever comes first. And that the idea behind whole life insurance is it provides you something called living benefits so we can add on all sorts of goodies onto a whole life insurance product that will allow you to have what we consider living benefits so that you can utilize your living benefits today instead of having to pass and not having ever utilized that life insurance policy. If you want more information on how we actually use our whole life insurance policies and check out our next video, remember to own your own lifestyle or someone else will.