Term Life vs. Whole Life: How I Think About Life Insurance

When it comes to term vs whole life I generally recommend term life insurance for most people.

Life insurance is meant to protect your family financially if you pass away. It’s not primarily an investment vehicle, and I don’t believe it’s the best investment tool for most people. But it can make sense for some.

For the majority of families term is the right pick.

Life insurance protects your life, while investment accounts are designed to grow wealth.

That said, whole life insurance does have a place. It can make sense if:

• You are very risk averse
• You’re in a strong financial position and need another place to store cash
• You are planning for legacy and estate strategies

However, I often find that trust planning can be a more effective way to move money tax-free, depending on your goals. I’ll go deeper into that topic in a future post.

My overall advice is simple:
Use life insurance for what it’s meant for protection. If you die unexpectedly, your family should not be left financially stranded. For most people, buying term life insurance purely for that purpose is the most efficient and cost-effective solution.

While whole life insurance can be appropriate for certain individuals, the vast majority of people should start by looking at term life policies and building their broader financial plan around that foundation.