Term and whole life insurance policies발음듣기
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Term and whole life insurance policies
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출처 : 칸아카데미
Term and whole life insurance policies
Let's say that I am 40 years old, I'm married, I am married, I have two children, two children, and I'm the main income earner for my family, so I earn most of the income for my family, and we also have a mortgage.
We also have a mortgage, and I'm hoping that my kids go to college, and that we'll be able to pay for college, college, and I also want to make sure that my spouse, if anything were to ever happen, can retire, can retire because maybe my spouse does not have the income-generating ability, or maybe even if he/she does, they would have to, to a large degree, have to take care of the children if anything were to happen to me.
Because of all of these things that I want to make sure get paid off or get funded in the event that I die, I think about getting life insurance.
I think about getting life insurance.
I think most of us understand the general idea about life insurance.
You pay a certain amount on a regular basis, and in the event that you were to die, your relations, whoever you put as the beneficiaries of your life insurance policy, or your estate, those people will get some money.
But life insurance isn't quite that simple.
One version of life insurance is the other one is less simple.
There's two types of life insurance.
One is term life insurance, term life insurance, and the other is whole life insurance, whole, whole life insurance.
I'll talk about term because frankly, term life insurance is simpler.
I go to the insurance agent, and the insurance agent says, "Look, if you pay a premium, if you pay a premium every year of $500, $500, the word premium" literally just means the amount that you would pay every year.
'"If you pay a premium of $500 every year for 10 years," so the term here is 10 years, term here is 10 years, If you were to die at any point over those 10 years, we will give you, we will give you $500,000."
I guess more exact, "We will give your family, or we will give the beneficiaries of your policy "$500,000."
The beneficiaries are the people who would benefit from your policy, who would get the payout if, in the event that you were to die.
Over the next 10 years, you'll pay about $5,000.
If you were to die, your family will get $500,000.
The reason why this works out for the insurance company is that the insurance company figures out, OK, if you don't smoke, you have good health, it's unlikely that you're going to die in the next 10 years, and so if they average it over many, many thousands of people, they're going to make money.
Some people are going to randomly die, but they're going to get the premium from everyone else, and that's going to more than offset the payoffs that they need to give for the people who just randomly are in accidents or who die for whatever reason.
The reason why this is called term life is that if you don't die after those 10 years, you have to then get a new insurance policy.
If you don't get a new insurance policy, after those 10 years you didn't die, nothing really happens.
You just keep on living.
All of this money that you had put in goes away.
It just goes to the insurance company.
You gave it to them in the event that you might have died in those 10 years.
You didn't.
All is fine now.
What's unfortunate, and this was probably good enough for you because 10 years was, from when you're 40 to 50 years old, maybe that's the time that your kids started to go to college.
That gave you enough time to save more money for retirement.
It gave you time to pay off more the mortgage and maybe save up some more money for college, and so you say, "Hey, 10 years was perfect for me."
If you think when you're 40 years old that, "Hey, I want more time.
'"I want more time to pay off the mortgage, save money for college, save money for retirement," then you could make this a 20-year policy.
Then you could make this a 20-year policy.
If you make this a 20-year policy, then your premium is going to be a little bit higher.
You're going to pay it every year, but the reason why the premium is going to be a little bit higher is that you have a higher chance of dying from ages 50 to 60 than you did from ages 40 to 50, so the insurance company will figure out those probabilities and charge you a slightly more larger amount.
But regardless any way you look at it, in a term policy, you pay a fixed premium for a fixed term.
If you pass away over that term, your family gets the payoff.
If you don't, then the policy just expires, and you have to get another term life policy.
At some point, maybe by the time that you're 70 years old, if you haven't passed away, and hopefully you haven't, it's actually very hard to get a term life policy when you're 70 because the insurance company would say, "You have a high probability of passing away between the age of 70 and 80.
'"We don't want to take that risk."
Term life is really good if you feel that there is just a set amount in your life where you just want to make sure "I'm around for the next 10 or 20 years to take care of a lot of obligations.
'"If anything were to happen, then my family can use the payoff from the policy to take care of these obligations for themselves."
This is actually what I have.
I have a term life policy because I am right now 34 years old, and I have a mortgage, and I have a young child, and I want to make sure that if anything were to happen to me over the next, I believe my policy term is 20 years, if anything were to happen over the next 20 years, that my family will get enough money that they can pay off the mortgage, have money for college, and then maybe some money for my wife's retirement.
The other type of policy is whole life.
Whole life, the motivation for whole life policies comes from the idea that people did not like the ... people did not like this notion that you pay money in a term life policy year after year after year, but if you don't die, which is frankly a good thing, but if you don't die, then all that money just went for nothing.
You don't get it back.
You didn't save it any way or anything like that.
The other issue is that a term life is only valid for a certain term, 10 years, 20 years, whatever it might be.
Some people want the idea that, "Hey, I want to keep paying a premium my entire life, and when I die," and for all we know, all of us will die, "when I die, there will be a payoff.
'"If I am 40 years old, I might be paying that premium for the next 40 years, but when I'm 80 and if I passed away at 80, my family will still get something for all of this insurance that I paid."
Whole life can appeal to all of these notions that you're saving some of this premium, that your family definitely will get a payoff, but the insurance companies aren't silly people.
They'll scrutinize their probabilities, and they want to make sure that it's a profitable thing for them.
So really, what they do in a whole life policy is that they just charge you more so that you get a lot of what's in the term life policy, a lot of the insurance aspects of it, and you also get a saving part, but they charge you a lot for that so that it comes out to be a good deal for them.
In a whole life policy, for the same 40-year-old, and I'm just making up the numbers.
You should contact an insurance agent if you want more accurate numbers.
Your premium, your premium, and let's say it's also for $500,000 payoff.
Your premium in this situation could be a lot higher than the term life policy, so it could be ... maybe it is $5,000.
It is $5,000 per year.
The term is your whole life, so there is no term here.
I shouldn't even write term because there's no term.
It's your whole life.
I don't even have to rewrite it.
That's the name of the policy.
If you were to die at any point, so you'll just keep paying this policy until you die, and then your family will get the payoff, will get the five ... so upon death, the beneficiaries, the people who will benefit from your policy, will get $500,000.
You might be saying, "Wait, this is a complete ripoff."
'"I'm paying 10 times more, but it's the same death benefit."
There's a couple of things to think about why it's not quite that much of a ripoff, although it tends to be always a little bit more less financially savvy than the term life, is that this is going to ... as long as you continue to pay this premium, this is guaranteed because you will die one day.
Unless you know something the rest of us don't know, you will die one day.
In the term life case, once you become 60 or 70, an insurance company is going to charge you a lot higher of a premium to insure you for this amount because they think there's a high probability that they're going to have to pay it off.
In the whole life, you pay the same, I would call it very high premium your entire life, and so earlier on in your life, when you're 30 or 40 or 50, this premium is definitely going to be higher than a term life premium.
But maybe when you become 70, if you were 70 years old and you were to ask for a term life policy, one, you might not even be able to get one, or if you were able to get one, they would charge you a huge premium.
Maybe it would be $6,000 a year.
Maybe it would be $10,000 a year.
At that point in your life, this would be a little bit cheaper.
The other thing that the whole life policy does for you is that the insurance company is implicitly setting aside some of this money to just purely insure your life, but they are also setting aside some of this money in ... they're putting it aside as cash, and that cash does build up over time.
Not all of your premium goes into this cash, but some of your premium does.
Early on, in the first year of premium, usually that just goes to the insurance company, and then every year, a fraction of your premium does go into a savings account within the insurance company, and you get ... let me call it "cash savings," and it can get interest.
It can get interest while it is with the insurance company.
It's getting interest on a tax-deferred basis.
Someone trying to sell you a whole life will say, "Hey, look, this is a good deal.
'"You pay a premium, "you're guaranteed this payment your whole life.
'"Your family will eventually get the death benefit as long as you continue to pay the premium, "and we're building up this cash savings for you.
'"If at some point you decide, Hey, look, all of these risks aren't there for my family anymore, "I don't want to pay this premium anymore, maybe you're 65 years old, you've paid off your mortgage, you've saved up a bunch of money.
You say, "Look, I'm going to stop paying this when I'm 65," so this will go out of the picture, but then you can get the cash payout, so all of this extra cash and interest, you'll be able to get that for yourself.
What they won't tell you, and so you feel good about it.
You're, like, "Wow, it's like life insurance.
'"It's like savings at the same time."
What they might not clarify as much is that they're taking huge fees on this cash savings, so you probably would have, in fact, you definitely would have been better off if this was your point, if you wanted to save some and still have the life insurance for a fixed amount of time until you were able to take care of these obligations, you probably would have been better off buying a term life policy and paying this lower premium and then taking the difference, if this really is the difference.
I just made up these numbers for simplicity.
But taking the difference, maybe the difference is $4,500 each year, and putting this into a savings account or investing it or putting it in a mutual fund, whatever you do.
Over time, over the term of this policy, you'll probably save more money and get more interest doing this because you won't be implicitly paying all of the fees to the insurance company.
I just realized that I didn't answer a question that might be burning in your brain, because in whole life, we talk about the scenario that you can pay this premium your entire life and in the event, and you can just all the way until the day you die, and so when you die, your family will definitely get the payoff.
They will definitely get the 500K upon your death.
We also talked about the scenario that if any time before that, you decide, "Hey, I don't need life insurance anymore," you can stop paying your premium.
Your family won't get the death benefit in the situation that you were to die, but you would get the cash payout, or whatever is left after the insurance company has taken their fees and set aside some for the insurance component of what they're selling you.
But the question that you might ask, "When you die, what happens to the cash amount?"
Because before you die, you can cash it out.
If you die, you definitely get the payoff, but what happens to the cash amount?
The answer there is you don't get it.
You don't get it.
It's viewed as part of ...
It's viewed as what's backing up your death benefit.
What's unfortunate, if, for whatever reason, this cash amount is even larger than the death benefit.
Maybe you live unusually a long amount of time.
You live 50 years and you're paying ... or you live to 90, so you're living 50 years from the day that you start the policy, so you pay $250,000, but you have to remember compound interest.
You're getting returns on that year after year, year.
Maybe this cash payout becomes $600,000 when you accrue all of the interest and everything else in it.
Regardless of that fact, although this would be a silly thing for you to do, regardless of that fact, if you were to die, your family would only get the $500,000, which really makes you ask the question if you know that your cash payout is larger than the amount that is going to be paid off if you die, the best thing is to just stop paying the premium and get the cash payout and give that to your family, rather than waiting around to die, because this is worse in two ways.
One, you die, and in the second way, you're actually getting less money.
But just to answer your question, in the event of your death, your family does not see this.
They don't see the savings portion.
They only get this payout right over here.
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Let's say that I am 40 years old, I'm married, I am married, I have two children, two children, and I'm the main income earner for my family, so I earn most of the income for my family, and we also have a mortgage.발음듣기
대기중
We also have a mortgage, and I'm hoping that my kids go to college, and that we'll be able to pay for college, college, and I also want to make sure that my spouse, if anything were to ever happen, can retire, can retire because maybe my spouse does not have the income-generating ability, or maybe even if he/she does, they would have to, to a large degree, have to take care of the children if anything were to happen to me.발음듣기
대기중
Because of all of these things that I want to make sure get paid off or get funded in the event that I die, I think about getting life insurance.발음듣기
대기중
You pay a certain amount on a regular basis, and in the event that you were to die, your relations, whoever you put as the beneficiaries of your life insurance policy, or your estate, those people will get some money.발음듣기
대기중
One is term life insurance, term life insurance, and the other is whole life insurance, whole, whole life insurance.발음듣기
대기중
I go to the insurance agent, and the insurance agent says, "Look, if you pay a premium, if you pay a premium every year of $500, $500, the word premium" literally just means the amount that you would pay every year.발음듣기
대기중
'"If you pay a premium of $500 every year for 10 years," so the term here is 10 years, term here is 10 years, If you were to die at any point over those 10 years, we will give you, we will give you $500,000."발음듣기
대기중
I guess more exact, "We will give your family, or we will give the beneficiaries of your policy "$500,000."발음듣기
대기중
The beneficiaries are the people who would benefit from your policy, who would get the payout if, in the event that you were to die.발음듣기
대기중
The reason why this works out for the insurance company is that the insurance company figures out, OK, if you don't smoke, you have good health, it's unlikely that you're going to die in the next 10 years, and so if they average it over many, many thousands of people, they're going to make money.발음듣기
대기중
Some people are going to randomly die, but they're going to get the premium from everyone else, and that's going to more than offset the payoffs that they need to give for the people who just randomly are in accidents or who die for whatever reason.발음듣기
대기중
The reason why this is called term life is that if you don't die after those 10 years, you have to then get a new insurance policy.발음듣기
대기중
If you don't get a new insurance policy, after those 10 years you didn't die, nothing really happens.발음듣기
대기중
What's unfortunate, and this was probably good enough for you because 10 years was, from when you're 40 to 50 years old, maybe that's the time that your kids started to go to college.발음듣기
대기중
It gave you time to pay off more the mortgage and maybe save up some more money for college, and so you say, "Hey, 10 years was perfect for me."발음듣기
대기중
'"I want more time to pay off the mortgage, save money for college, save money for retirement," then you could make this a 20-year policy.발음듣기
대기중
You're going to pay it every year, but the reason why the premium is going to be a little bit higher is that you have a higher chance of dying from ages 50 to 60 than you did from ages 40 to 50, so the insurance company will figure out those probabilities and charge you a slightly more larger amount.발음듣기
대기중
But regardless any way you look at it, in a term policy, you pay a fixed premium for a fixed term.발음듣기
대기중
At some point, maybe by the time that you're 70 years old, if you haven't passed away, and hopefully you haven't, it's actually very hard to get a term life policy when you're 70 because the insurance company would say, "You have a high probability of passing away between the age of 70 and 80.발음듣기
대기중
Term life is really good if you feel that there is just a set amount in your life where you just want to make sure "I'm around for the next 10 or 20 years to take care of a lot of obligations.발음듣기
대기중
'"If anything were to happen, then my family can use the payoff from the policy to take care of these obligations for themselves."발음듣기
대기중
I have a term life policy because I am right now 34 years old, and I have a mortgage, and I have a young child, and I want to make sure that if anything were to happen to me over the next, I believe my policy term is 20 years, if anything were to happen over the next 20 years, that my family will get enough money that they can pay off the mortgage, have money for college, and then maybe some money for my wife's retirement.발음듣기
대기중
Whole life, the motivation for whole life policies comes from the idea that people did not like the ... people did not like this notion that you pay money in a term life policy year after year after year, but if you don't die, which is frankly a good thing, but if you don't die, then all that money just went for nothing.발음듣기
대기중
The other issue is that a term life is only valid for a certain term, 10 years, 20 years, whatever it might be.발음듣기
대기중
Some people want the idea that, "Hey, I want to keep paying a premium my entire life, and when I die," and for all we know, all of us will die, "when I die, there will be a payoff.발음듣기
대기중
'"If I am 40 years old, I might be paying that premium for the next 40 years, but when I'm 80 and if I passed away at 80, my family will still get something for all of this insurance that I paid."발음듣기
대기중
Whole life can appeal to all of these notions that you're saving some of this premium, that your family definitely will get a payoff, but the insurance companies aren't silly people.발음듣기
대기중
They'll scrutinize their probabilities, and they want to make sure that it's a profitable thing for them.발음듣기
대기중
So really, what they do in a whole life policy is that they just charge you more so that you get a lot of what's in the term life policy, a lot of the insurance aspects of it, and you also get a saving part, but they charge you a lot for that so that it comes out to be a good deal for them.발음듣기
대기중
Your premium in this situation could be a lot higher than the term life policy, so it could be ... maybe it is $5,000.발음듣기
대기중
If you were to die at any point, so you'll just keep paying this policy until you die, and then your family will get the payoff, will get the five ... so upon death, the beneficiaries, the people who will benefit from your policy, will get $500,000.발음듣기
대기중
There's a couple of things to think about why it's not quite that much of a ripoff, although it tends to be always a little bit more less financially savvy than the term life, is that this is going to ... as long as you continue to pay this premium, this is guaranteed because you will die one day.발음듣기
대기중
In the term life case, once you become 60 or 70, an insurance company is going to charge you a lot higher of a premium to insure you for this amount because they think there's a high probability that they're going to have to pay it off.발음듣기
대기중
In the whole life, you pay the same, I would call it very high premium your entire life, and so earlier on in your life, when you're 30 or 40 or 50, this premium is definitely going to be higher than a term life premium.발음듣기
대기중
But maybe when you become 70, if you were 70 years old and you were to ask for a term life policy, one, you might not even be able to get one, or if you were able to get one, they would charge you a huge premium.발음듣기
대기중
The other thing that the whole life policy does for you is that the insurance company is implicitly setting aside some of this money to just purely insure your life, but they are also setting aside some of this money in ... they're putting it aside as cash, and that cash does build up over time.발음듣기
대기중
Early on, in the first year of premium, usually that just goes to the insurance company, and then every year, a fraction of your premium does go into a savings account within the insurance company, and you get ... let me call it "cash savings," and it can get interest.발음듣기
대기중
'"Your family will eventually get the death benefit as long as you continue to pay the premium, "and we're building up this cash savings for you.발음듣기
대기중
'"If at some point you decide, Hey, look, all of these risks aren't there for my family anymore, "I don't want to pay this premium anymore, maybe you're 65 years old, you've paid off your mortgage, you've saved up a bunch of money.발음듣기
대기중
You say, "Look, I'm going to stop paying this when I'm 65," so this will go out of the picture, but then you can get the cash payout, so all of this extra cash and interest, you'll be able to get that for yourself.발음듣기
대기중
What they might not clarify as much is that they're taking huge fees on this cash savings, so you probably would have, in fact, you definitely would have been better off if this was your point, if you wanted to save some and still have the life insurance for a fixed amount of time until you were able to take care of these obligations, you probably would have been better off buying a term life policy and paying this lower premium and then taking the difference, if this really is the difference.발음듣기
대기중
But taking the difference, maybe the difference is $4,500 each year, and putting this into a savings account or investing it or putting it in a mutual fund, whatever you do.발음듣기
대기중
Over time, over the term of this policy, you'll probably save more money and get more interest doing this because you won't be implicitly paying all of the fees to the insurance company.발음듣기
대기중
I just realized that I didn't answer a question that might be burning in your brain, because in whole life, we talk about the scenario that you can pay this premium your entire life and in the event, and you can just all the way until the day you die, and so when you die, your family will definitely get the payoff.발음듣기
대기중
We also talked about the scenario that if any time before that, you decide, "Hey, I don't need life insurance anymore," you can stop paying your premium.발음듣기
대기중
Your family won't get the death benefit in the situation that you were to die, but you would get the cash payout, or whatever is left after the insurance company has taken their fees and set aside some for the insurance component of what they're selling you.발음듣기
대기중
What's unfortunate, if, for whatever reason, this cash amount is even larger than the death benefit.발음듣기
대기중
You live 50 years and you're paying ... or you live to 90, so you're living 50 years from the day that you start the policy, so you pay $250,000, but you have to remember compound interest.발음듣기
대기중
Maybe this cash payout becomes $600,000 when you accrue all of the interest and everything else in it.발음듣기
대기중
Regardless of that fact, although this would be a silly thing for you to do, regardless of that fact, if you were to die, your family would only get the $500,000, which really makes you ask the question if you know that your cash payout is larger than the amount that is going to be paid off if you die, the best thing is to just stop paying the premium and get the cash payout and give that to your family, rather than waiting around to die, because this is worse in two ways.발음듣기
대기중
But just to answer your question, in the event of your death, your family does not see this.발음듣기
대기중
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