In this article, we will discuss term vs whole life insurance according to Suze Orman and will help you to choose the right one.
Whether or NOT you agree with Suze Orman’s interpretative framework on Life’s insurance, one thing stands, the practical financial advises she dishes out are a stroke of genius.
Criticized and acclaimed in the same measure — with her critics inveighing against her bubble gum interpretation of financial matters they think are of no value to anyone — one area her advise has always been on the nose is whole life insurance, particularly where she advises people NOT to buy whole life insurance.
As expected, Suze Orman is a huge proponent of life insurance. She’s been heard several times advising many of her fans to sign up for one, the only difference is that all her advises on life insurance are lopsided in favor of term life insurance, which is basically meant to last for a specified period of time, and NOT a lifetime as with whole life insurance.
To understand how much Orman despises whole life insurance, it’s important to first know that she has an entire playlist on YouTube that’s dedicated to comparing the two types of insurance while poking holes on the utility of whole life insurance.
Now, this begs the big question, does her sentiments or point of reference hold water?
Well, read to find out?
Whole Life insurance is a Complete Waste of Money
One of Orman’s common argument on life insurance is that it’s a complete waste of your hard-earned money. The whole point people dig out for financial advice is to come up with sound ways to save money. It’s for this reason that the bulk of the financial advisers you know fashion their advise around creating a budget and cutting back on your spending amount.
Orman’s financial advise even takes this simple model to a whole new level, where she advises her fans to consider replacing their whole life insurance policy with its immediate opposite, a term policy.
To make you understand her sentiments, Orman even goes a step further to mathematically belabor on her point in this simple video (https://youtu.be/DPmbgdDIrTo).
In this video, a stay at home mum calls to voice her frustration with whole life insurance. According to her, she has a husband who pays $350 a month to a whole life insurance policy.
In advice, Orman is quick to point out that the whole life insurance her husband signed up for is a big reap off when you look at it closely. She even goes on to suggest that a 20-year term policy of $500, 000 can cost as little as $30 per month, but whole life insurance policy has the monthly payments blown to insane amounts, which makes it a blatant reap off, to say the least.
According to Orman, had the caller decided to settle for term insurance and invested the difference, she would have so far accumulated cash assets amounting to $500, 000, while they’re still protected.
In this other video (https://youtu.be/kkUkZFczj0A), the second caller is quick to make it known that he’s been spending an upward of $1, 000 every year on their whole life insurance policy for the past eight years. But as it turns out, he’d have gotten the same level of protection with term insurance, having have made about $21, 000 from investing the difference.
In the same video, Orman also explains why whole life insurance has a much lower guaranteed minimum growth compared to the projected growth.
Turns out the callers have the whole life policies covering his children as well, but Orman is quick to discredit its value, terming it as “blood money.”
Echoing her sentiments are a good number of other financial advisers, most of whom are quick to discredit life insurance by passing it as a bad investment, and which your child can do without.
Where parents are to sign up for whole life insurance covering their children, it’s widely advised in the financial realm for them to purchase a child rider’s on their term life insurance instead. What remains unknown to many is that term life insurance policies do feature an option for adding a child rider’s plan on the policy.
And with just a small fee added to it, it’s even possible to expand the policy to make it provide a small death benefit that will be covering funeral expenses and your grieving time off from work just in case your child passes away.
Compared to the plans offered in a whole life insurance policy, the child rider’s plan is extremely simpler and a way cheaper.
Situations Where it’s more Practical to Purchase Child Life Insurance
Every rule has its limit. So while you’re advised to NEVER purchase a child life insurance policy, there is a situation where settling for this option is better off than any other decision that you’re likely to make.
Speaking of which, imagine a situation where the chances of your child developing a certain medical condition are far greater than average.
Buying a life insurance cover in their adulthood can prove to be more expensive than you can afford. And if that’s the case, then it makes more sense to purchase a life insurance policy for them while they’re still young.
With life insurance, the child will be allowed to retain the policy even after maturing up, whether or NOT they end up developing any given health conditions in their childhood or after maturing up, and which otherwise would have been uninsurable with any other available alternative.
Life Insurance Doesn’t Necessarily Have to Last Forever
Life insurance is widely thought to last forever, and that’s pretty much the reason it’s on the expensive end. But what’s unknown to many is that it only lasts for as long as you’re willing to pay the premiums.
Subconsciously, people only sign up for a life insurance policy for a particular stretch of time thinking they have signed for it forever. But most of the time they’ll only be needing the policy up until their children are fully grown and capable of fending for themselves or until they’ve managed to save up a good amount of money to acquire enough assets that their spouses and dependents can afford to live off.
So by the time one reaches retirements, their expenses will be much fewer considering their mortgage would be already paid off, and so is their loans and other expenses. The number of dependents would also have reduced significantly.
So where one has the option to bank on life insurance, Orman considers retirement savings as a much better alternative, which she calls a “no-brainer.”
Time is of the essence with every financial plan you come up with. It’s also the biggest danger considering you have to live long enough to be able to pay off your debts, save for college and even fund your retirement among others.
And once you’ve completed your financial plan, life insurance policy ceases to be of any value to you, which means you won’t be certainly seeing the need to pay for one.
Term Insurance is Enough to Fight Off Any Financial Fear Your Family Has
The most common cause of stress among many people in the world is money. The sad truth is that there’s little one can do on their own to completely rid it off. Come to think of it, even millionaires without money issues still stress over it. However, what life insurance does is that it offers you a peace of mind, by securing your future just in case anything happens.
No one seems to understand this better than Orman, and she has a simple solution for you. She recommends three key items that she thinks can completely allay all the financial fears one has.
First, she suggests that you come up with proper financial documentation that includes a will, a living trust you can revoke, and the health care and financial power of an attorney. Next is making sure you have an auto insurance and proper home. And the third thing, as expected, is term life insurance.
The three pieces of advice are closely related, in addition to working together to create some sort of financial safety net. What most insurance companies do is try to paint a holistic picture of what insurance really is instead of carrying out a thorough insurance checkup on their clients to find out which insurance products best address the financial gaps they have.
One thing Orman is never soft about is the fact that every new parent should sign up for life insurance. You don’t necessarily need to sign your child up as a beneficiary but at least do yourself a favor by getting a term life insurance.
You have your share of financial fears. But what could be more important in this life than securing the future of your child? Their cost is inevitable unless death robs you off your bundle of joy. Starting with their day-to-day costs, expenses, and the money you’ll be paying for their college fees.
Orman’s isn’t polite while expounding on this. Any claim of loving a child should be backed by a proper plan of securing their future. And what better way is there to do it than to at least consider signing them up for a term life insurance?
Situations will always vary from person to person, and so is the amount of coverage every family needs. In other words, the most suited coverage for you is one that snugly addresses your financial situation. So in order to find a policy whose terms and benefits aligns with your family needs and budget, it’s crucial that you begin by calculating your financial needs first.
In which case, Suze Orman is convinced that term life insurance is among the most crucial segment of any financial plan a person can come up with in the modern age.