FREQUENTLY ASKED QUESTIONS

Question: What type of life insurance policy is this cheapest to buy?

Answer:

The least expensive type of life insurance policy judged by size of premium payments and cost of insurance is a term life insurance policy.  This is because term life insurance has no cash value, and expires before the insured is hypothetically expected to pass away.  Term life insurance is not permanent, and insurance companies calculate that the chances of an insured person dying during the policy’s active years is lower if the insurance will only last for a limited amount of years.

While term life insurance is the least expensive policy to own when viewed through the spectrum of total cost of insurance, term life insurance provides the lowest expected rate of return for a policy owner, almost zero.

A whole life insurance policy on the other hand not only is 100% assured of providing a return to either the policy owner or the beneficiaries, but actually will pay for itself over time.  This is especially true when the whole life insurance is purchased from a mutual life insurance company, meaning the company is actually owned by the policy holders.  These whole life policies tend to pay the highest rates of dividends, and over time the dividend payment can actually grow large enough to pay the entire premium by itself.   This means the policy will become not only self sustaining, but the cash surrender value will grow automatically with each passing year.

When viewed through a long term perspective, it not only is cheaper to own a whole life insurance policy, but the insurance policy can actually make you money.  It is for this reason that whole life insurance is viewed as an investment, and a way to save money for clients.

Variable universal life insurance policies and even traditional universal life insurance policies may provide an even higher rate of return than a whole life insurance policy, but they could also provide a lower rate of return.  Total rate of return depends more on funding levels, timing of funding, market performance, and changes to cost of insurance over time.  Generally speaking these are a riskier form of life insurance coverage than whole life insurance, and may result in a lower or higher rate of return to the owner.  Poorly funded policies may end up being much more expensive than an equivalent level term policy over time, but well funded, highly performing policies may almost rival investment account returns.

The least expensive form of life insurance is not as simple and straightforward as it may seem.  For the lowest cost of insurance, and lowest premium payments, choose term life insurance.  For the best long term value, a permanent form of life insurance such as whole life insurance will maximize the value of the premiums.