welcome back to whiteboard finance my
name is Marco and I'm here to help you
master your money and build your wealth
in this video we're gonna talk about the
differences between term life insurance
and whole life insurance so insurance is
one of those things in life that's
pretty much necessary because well life
happens I could finish recording this
video right now go for a bike ride and
get hit by a car and that's that
whiteboard finance is over even though
I'd like to think that my audience would
create a you know Facebook memorial page
and you know share my videos into
eternity but we all know that probably
wouldn't happen so the fact is is that
we're all eventually gonna need life
insurance at one point or another all
throughout our lives so in this video
I'm gonna go over the differences
between term and whole life insurance
before I get into that however I'm
actually excited to announce that I did
decide to make this a sponsored video
today's sponsor is simply safe it's an
excellent home security system that's
completely wireless and the only reason
I'm recommending it is because I use it
myself if I didn't use it myself and
like know and trust it I would not make
this a sponsored video so check that out
right now hey everybody so I just wanted
to introduce the simply safe system it
is essentially an incredibly effective
reliable home security system that will
make sure your home is safe so basically
your home is professionally monitored
24/7 so if anything happens they'll make
sure the police get called so this thing
is kind of like the brains of the
operation here okay so there's a lot of
really thoughtful features so you can
see here that there's a little sensor up
here so if the glass gets shattered it
automatically notifies the authorities
and this thing starts ringing like an
alarm there's also really cool features
like these little sensors here that go
to the window so if this is lifted or
separated while it's being monitored
that will also notify the alarm so
essentially you're covered it's really
easy and intuitive to use all you have
to do is just put in your PIN on this
pad right here so it's just like any
other home security system so the
pricing is pretty pretty fair and honest
it's only 50 cents a day with no
contract and you can cancel anytime
so the nice thing is is that it's
equipped for the worst case scenarios so
in case you lose Wi-Fi or power so this
is my ethernet cord going into my router
right there if that's gay if that gets
cut or broken this thing will still work
so it's equipped in case the system is
attacked if you lose power or if you
lose Wi-Fi so the reason why I decided
to go with this simply safe was because
I read a lot of reviews and I like know
and trust it this is essentially my
business right here this is my full-time
income so I need to be able to protect
the system at all times the nice thing
about this system is that every single
sensor that you see that comes with this
thing is very sleek and small so it's
not obtrusive all these sensors you can
barely even see them so here's the one
that detects if your thermostat stops
working if the temperature gets below a
certain temperature that will actually
notify it so ultimately this process I
know it looks kind of complicated but it
couldn't have been any easier all these
devices come with a sticky back on them
and they're literally just stuck to the
wall so it's all wireless the whole
system which i think is really cool so
ultimately just wanted to recommend a
product that I like and use again you
know our sponsorships come very rarely
onto this channel so if I am
recommending something I definitely use
it and love it thanks guys
okay so what is term life insurance okay
term life insurance provides coverage
typically for a set period of time and
most people go with 20 to 30 years on
this okay you can go less you can go
more it all depends on what you want and
what suits your needs so if you or your
spouse passes away during this time here
you are then paid the benefit of
whatever the policy is so if the policy
is worth let's call it $500,000 you
croak within these twenty to thirty
years of whatever the policy is your
beneficiaries it's usually your spouse
or your children or whoever you sign as
the beneficiaries will get this payout
period so the nice thing about term life
insurance is that it's very affordable
okay it's actually much more affordable
than whole life so typically this works
out to be for every seven dollars in
term life insurance for let's call it a
20-year coverage period you're probably
going to be paying closer to a hundred
dollars in whole
life insurance for a 20-year period okay
that's just how the premiums shake out
and I'll get into that more in depth
later
so term life insurance has no cash value
okay so you're not paying into any
premiums you're not investing any money
so as mentioned before let's use that
$500,000 as an example you pay a set
amount per month let's just call it I
don't know 20 bucks for that it's
probably a little bit more but you pay
20 30 bucks per month you get this
amount of coverage whatever that
coverage is and that's it you're not
building anything you're not investing
that money you're not making any
interest on that money think of it like
car insurance you're just paying a set
amount per month so you get a certain
amount of coverage okay so this is
actually not worth anything until you
actually need it okay
but that's actually the whole point of
insurance so that's not necessarily a
bad thing so the pros that come with
term life insurance is that it's a great
choice for people that are looking to
how do I say this replace their income
so let's say income replacement okay so
if you're someone who has a family of
four and you're making fifty grand a
year
you should typically and have something
that covers about 10 to 12 times your
annual salary so in the event of your
death your spouse or whoever your
beneficiary is can take that lump sum
invest it in the market and hopefully
live off the interest that would have
been paid to you as your salary okay so
this is also good for debt payoff and
what I mean by that is that the premiums
are much lower than whole life insurance
so you can actually use this to put down
towards debt and pay off your debts and
get out of debt okay and then finally
this doesn't apply to most people
watching this video but business
policies term life insurance is great so
if you have like a key person that's
within an organization they passed away
the organization or whoever the
beneficiary is will realize that
insurance policy so let's talk about the
cons of term life insurance so this is
one of the biggest ones it's costly to
renew the reason for that is if you use
the example of the 30 year old that gets
a 30 year policy
he still needs it say like he's still in
bet or whatever his finances are in an
order and he still needs to work if he
goes to renew this policy at sixty years
old it's obviously gonna be a lot more
expensive than when he was 30 when
you're 30 you have a lot more life to
live you're generally healthier there's
less health risks when you get older
obviously you have less time to live
meaning the policy has a higher chance
of being paid out which means that the
numbers have to work for the insurance
company so that was the cons of term
life insurance let's get into whole life
insurance so what is whole life
insurance so whole life has three
components that we need to talk about
and this is what differentiates it from
term the first one are the premiums that
you pay so there's both premiums
obviously in the term that was the $7
versus the 100 so there has to be a
reason why the hole is so much more why
is it a hundred
so the premiums are the first component
the second is the death benefit okay
this is just what it sounds like this is
the amount that you're paid upon your
death so let's just call it 500 grand
for easy numbers and then finally this
is the kicker this is what
differentiates hole versus term and
that's the cash value of and I'll put a
dollar sign here so the cash value is
pretty much what gets accumulated and
what these salespeople the sales agents
or the insurance agents try and sell you
on it's kind of like the savings
component or the investment component of
a whole life cash value policy okay so
when you pay your premium the money that
you pay remember this seven and hundred
bucks a month obviously a big part of
that is going towards actually funding
the death benefit for like the first
five to ten years okay also where these
premiums are going in the beginning
they're not going towards your cash
value which you're led to believe a very
small amount is going towards the cash
value the majority of these premiums are
going towards the commissions of the
salesperson so that's why they always
try and push whole versus term they're
also going to the administrative fees of
actually running the policy and they're
also going like I said to actually fuel
or fund the death benefit
okay so you're led to believe that oh if
you have a cash value whole life
insurance policy you're gonna make ten
eleven percent in the market it's gonna
grow and it's gonna be tech Stafford and
that's gonna be your money right well
actually that's incorrect
after all the fees and all that stuff is
said and done you're typically averaging
one point five percent on a whole life
policy okay let me repeat that one point
five percent to two point two percent
after you've paid into this death
benefit for like five to ten years that
cash value starts to build more and more
based off the premiums that you're
funding it with okay so beneficiaries
here's the big kicker beneficiaries are
only entitled to the death benefit when
you pass away okay when you pass away
the cash value that you've built up this
whole time that's the whole thing that
you've been being sold on this whole
time goes away okay this gets absorbed
by the life insurance company believe it
or not this does not go to your
beneficiaries okay so if you have a
$500,000 policy that goes to your
beneficiaries okay the cash value does
not that goes back to the insurance
company so all this money that you saved
there's a ninety three dollar difference
between the seven and the hundred that
ninety three dollar difference that
you've been saving month after month
after month after month it does not go
to your beneficiaries it goes back to
whoever your provider is okay the other
thing is with whole life insurance you
have no choice in how the life insurance
company applies the premium okay so when
we talked about the premium for the
first five ten years going towards a
majority of the death benefit the
Commission's and the fees you can't
choose what percentage that goes to the
cash value it's basically whatever their
policy says and whatever those
underwriters and analysts have decided
so the thing is you can actually the
only way to get this money right here
the cash value is to cancel the policy
and surrender your policy so you lose
the death benefit and then they'll cut
you a check for whatever that cash value
was so you're losing your insurance
that's the whole point of getting
insurance just to get your money back
that grew at a very poor rate that one
point five to two point two percent so
it sounds like I've been talking
smack about the whole life policy there
are a couple different benefits here
that cash value portion is non-taxable
as long as it doesn't exceed the total
premiums that you paid okay so if you
paid let's just call it hundred grand in
premiums as long as this cash value
isn't above 100 grand it's not taxable
anything above that hundred grand is
taxable okay
so very quickly let's just go over a
quick recap of the pros of the whole
life insurance and then we'll do a quick
recap of the cons and then I'll get into
a dollar comparison if you will so the
pros of the whole life insurance is that
you have coverage for life it's not set
to that twenty thirty years like we
talked about in the term policy okay
this is covered until the day you die
right they can do that because again
your family members aren't getting that
cash value when you pass away that goes
back to the insurance company so the
other thing is is that the premiums are
guaranteed and also the cash value is
non-taxable
and you can actually borrow against that
cash value if you want to so we talked
about the non taxable unless it exceeds
that amount borrowing against it so I've
actually watched Dave Ramsey talk about
this years ago it's kind of funny
borrowing against your cash value policy
is like going to a payday lender of the
middle-class so if your cash value
policy is like let's call it 50 grand
if you borrow against that to take out
money you have to pay a percentage on
the money you're basically going to a
loan shark okay you're paying a
percentage on your own money does that
make sense you've saved and saved and
saved and contributed that fat premium
every month now if you want to take out
money against this you have to pay a
percentage to borrow your own money does
that make sense
so let's get into some of the cons of
the whole life insurance some of the
cons are that it's obviously very
expensive okay so if this was a
restaurant I'd give it for dollar signs
next is that it's very inflexible again
we talked about those premiums not being
able to choose where they go again it's
covering Commission's fees all that
stuff I just typed in all right just
wrote premia s-- premiums
next is the cash value accumulation is
slow remember the first five to ten
years it's going towards the death
benefit it's not going towards the cash
value and then finally the big kicker
that I've mentioned a couple times now
is that the cash does not go to your
family so draw a little family here it
goes back it's absorbed back by the
insurance company okay so the whole
thing with life insurance is that it's
expensive and it's probably one of the
worst financial products out there in my
humble opinion okay because it's not
doing what it's supposed to do it's not
supposed to be an investment product
it's supposed to be an insurance product
you don't go to your car insurance and
say hey I'll pay you more premium if you
get me back 1.5 percent over 20 30 40 50
years that would be stupid so let's move
on to a cost comparison example here
very quickly so say we have a 31 year
old guy that has $100 a month budget to
spend on insurance okay so he can get
125 grand in term he can get 125 grand
in whole this one is gonna cost them 7
bucks a month this one's gonna cost them
$100 a month if you just did a simple
investment calculation okay let's just
say we're getting 8% in the market over
20 years because that's what this term
policy is going to be for you're gonna
end up with two completely different
numbers this 93 dollars the difference
between the hundred and the seven okay
so
93 dollars at 8% over 20 years would get
you I believe it's fifty two thousand
nine hundred and seventeen dollars in
the market over 20 years this if you
want to invest at like one and a half
percent which is what whole policies
typically return one and a half to two
point two percent after fees commissions
you know inflation all that stuff you're
gonna end up with typically twenty five
thousand nine hundred and eighty-three
dollars okay so it's a big difference
that's basically a twenty eight thousand
dollar difference so with all that being
said I hope that this was just a good
primer there's obviously different
policies different companies different
coverage amounts all that stuff that
needs to be taken as a consideration I'm
not talking about health age things like
that I just want to give you the big
open facts about the difference between
whole life insurance and term life
insurance so I hope this video was
valuable for you in the middle class I'm
definitely gonna be getting term life
insurance once I grow a family there's
really no reason for me to get it right
now at this point even though like I
said I could get hit by a bus right now
but if you got value out of this video
share it with one friend give the video
a like and please subscribe if you
haven't already thank you so much and
have a prosperous day