Kovar Capital: New Family Term vs Whole Life Insurance


Hey Taylor - I just had a baby and almost immediately started thinking about how I need life insurance. I haven’t really looked into it at all and was wondering if you had recommendations.

Hey Gary - Congrats on the new baby! I’m sure this is an exciting and tiring time, so kudos to you for having the wherewithal to look ahead. Life insurance is a must-have for anyone with dependents, and there are definitely good and bad policies, so I’m happy to offer my advice.

When choosing coverage, you’re essentially picking between term and whole life insurance. The difference is pretty basic on its face - term life insurance covers a specified term, usually ranging from 5 to 30 years. Whole life, unsurprisingly, offers coverage until you die, with a set premium until the policy is paid in full.

If you’ve heard of people talking about life insurance as an investment, they’re referring to whole life insurance. As you pay money into your policy, you build up a cash account from which you can withdraw later in life. You can also theoretically borrow against these funds, leveraging the asset. Whole life insurance has surface-level appeal, but that’s about it. In my opinion, you don’t get out of it what you put in.

For starters, whole-life policies are expensive. You spend nearly 10x what you would on good term coverage, and while you’re supposed to see some of that money when you get older, there are far better investments you could consider. The point of life insurance is to provide a safety net in the event of your passing. If you’re putting tons of money into this policy each year during your 30s, 40s, and 50s, you’re hurting your spending power during your best years and not investing as wisely as you could be. And, throughout the process, you’re not doing any better by the family you’re trying to provide for.

With a 20-year term, you eliminate the hoopla and secure a respectable settlement should tragedy strike. You’ll save money each month, you’ll get the peace of mind you seek, and your family will be covered should something happen. You should be able to get monthly premiums below $50 a month, and then you just need to renew well before the term expires.

You can certainly look into 10- and 30-year terms as well, but I’ve found 20 delivers the best pricing and flexibility. If you want to learn more about term policies and how they compare to whole-life insurance, you can check out a post I’ve written at gofarwithkovar.com.

It’s good that you’re thinking about life insurance, Gary. Now it’s time to stop thinking and buy because the longer you wait, the higher the premiums rise and the more risk you endure. Take care of it now, and get back to enjoying life with your new child. Thanks for the question!Kovar