Question

For a young couple with two young children in their early 30’s with limited assets and earnings, and the need for maximum life insurance, term life insurance would be better than whole life insurance. Give one reason why. Give one potential benefit of using a whole life insurance if the couple were very high earners

Answer 1

Here the facts are that we have a young couple with two young children in their early 30’s with limited assets and earnings. There are two types of life insurance: term and whole. Term life insurance provides life insurance coverage for a specific amount of time. This specific amount of time usually defined as 20 to 30 years. Further, if you or your spouse passes away at any time during this term, your designated beneficiaries (i.e. those you’ve selected to inherit your money) will receive the determined payout from the term life insurance policy. This form of life insurance plans is much more affordable than whole life insurance. This is primarily because the term life policy has no cash surrender value until you or your spouse passes away. So basically in other words, this type of insurance is not worth anything unless one of you were to die during the course of the term. Then that is only when you actually receive the money.

For high earners whole life insurance is generally the better option. If properly structured, it can offer steady tax-free dividends. Further, the cash value in the policy also builds up and can be used for a variety of income-producing activities. The key benefits are:

1. It can be sold at most times for its cash value.
2. These are not counted as part of the estate and are not taxed by the federal government.
3. A loan can be taken on its cash value.
4. It is legal to own more than one policy.
5. It can be used as a financial tool.