Suze Orman Talks Whole Life vs Term Life Insurance

Do you watch the Suze Orman Show? You might have an idea of Suze's stance on Term Life vs Whole life insurance.. The conversation below is one Suze had with a guest caller who asks her advice on a whole life policy a friend is trying to sell him.

Deepak: Hi Suze! We love your show. My wife and I watch it every week. It's such an honor to talk to you.

Suze Orman: Oh. Thank you! What can I do for you?

Deepak: Well Suze, a friend has recommended that we buy a whole life insurance policy as an investment.

Suze Orman: Stop! Stop! There isn't a friend in the world. Not one friend in the world that if it is a true friend that would recommend you buy a whole life insurance policy. A snook, somebody who wants to take you, somebody who in my opinion is not a friend maybe. But there is no way a friend would do it. Does that answer your question already?

Deepak: It gives me a good sense of what you are thinking.

Suze Orman: Alright, how old are you though Deepak?

Deepak: 31

Suze Orman: How much of an insurance policy? What was the death benefit?

Deepak: Um, I think 50...$500,000.

Suze Orman: $500,000? Alright how much was it per year?

Deepak: Fourteen

Suze Orman: Fourteen Hundred?

Deepak: $14,000

Suze Orman: Fourteen Thousand dollars a year?!?!

Deepak: ...and the idea was largely use it as an investment to put money away to save on taxes.

Suze Orman: Ok, just out of curiousity...made my nose itch. I have to tell you whenever my nose starts to run I feel like Samantha...where I
wanna...you know on Bewitched? I don't know if you were even born back then where I want to twinkle my little and get that guy out or whoever that friend is and off the face of this Earth.Listen, insurance is not an investment. Does this friend of yours happen to sell whole life insurance?

Deepak: Boy it seems like you're reading my mind here.

Suze Orman: Oh sweetheart that's not a friend that a sn....I don't even know %#*#)$! You know, it gives me dandruff I think. Listen, you can get a half a million dollar term policy for 20 years at your age for approximately $25 or $30 per month. OK? That's $300 per year. Now, if you really want to make an investment you could take all those other $1000s of dollars and take that money and invest it where? In a retirement account, a piece of real estate, in stocks, bonds, whatever it may be where it absolutely makes sense to you.

Do you know that I am a licensed insurance agent. A life insurance agent and I am licensed in every single state in the United States except Hawaii because I don't want to go to Hawaii right now to take the exam.

So I have been licensed everywhere. Very few people can tell you that they have that type of insurance background. I can tell you that if you put $14,000 into a whole life insurance policy, my friend, how much commission do you think I or your friend would make off of that $14,000 deposit?

Deepak: Like atleast a thousand or two.

Suze Orman: Oh, are you sitting down?

Deepak: I am.

Suze Orman: Are you? What don't you try about $10,000. Ok?

Deepak: Wow.

Suze Orman: So yeah, he could buy you...just forget it. Here's the bottom line. Don't do it. Do what I said. Buy a term insurance policy. You can get a half million dollars that way. $300 a year and tell your friend why doesn't he go and make some real enemies.

Suze Orman does not like Whole Insurance (also known as Variable Life Insurance / Permanent Life / Universal Life)? Why Not?

With Whole Life and the cost of the death benefit, it is way, way overpriced.

$500,000 worth of Whole Life Coverage = $14,000 per year
$500,000 worth of Term Coverage = $300 per year

This a difference of $13,700 that you pay extra just to get Whole Life Coverage.

What is the difference between Term Life Insurance vs Whole Life Insurance?

Term Insurance is for a set term or time period from 1 year and usually up to 30 years.

Whole Life Ins is made up of "Life Ins" + "Investment" (held by the insurance company).

In regards to Term Insurance there is no investment but it is just like auto insurance = pure insurance. Plain and simple.

It does not make sense to try to combine life coverage with an investment but with whole life coverage it is sold as such. Why would insurers combine insurance and investing?

Whole Life / Permanent Life / Universal Life / Variable Universal Life are all life ins where you have life insurance + investment and you are paying premiums for the rest of your life.

1st thing's first. What do you need life coverage for?

You need it to protect your family that depends on the breadwinner's income whether it be the husband working, the wife working or both parents working to bring money in to take care of the family. If something happened to the breadwinner then the life insurance is there to protect the family financially.

After the children grow up and start working to make their own income they no longer need to depend on the parents and there won't be much need for that type of coverage anymore.

Do you really want to keep paying premiums for your whole life?

Some people believe that it will make their family rich but that is further from the truth. You are just burning through money. It is better to buy term life coverage for only the time it is really needed and save the rest.

Besides, the older you get, the premiums are going to skyrocket. You only purchase it when you need to protect your family.

Invest your money or just save it.

What is good about the investment portion when you buy whole life ins?

It is sold to you as an investment for retirement / children's college fund / emergency fund in which it will grow while being held by the company and you can "BORROW" from it and pay it back with interest.

BORROW from my investment? Isn't it my money?

If you have a whole life policy you can only borrow it and you will be obligated to pay the insurer back with interest. They call it CASH VALUE. Sounds like a catchy and wonderful phrase right?

The real ripoff? You first year of premium payments you get NO CASH VALUE. It is correct. The investment portion kicks in the second year of your policy. The first year it goes to the insurance agent commission and the insurance company. Do you think that it is your money? No. It's their money.

BOTTOM LINE? Listen to Suze Orman and get Term Life Coverage when you need it (that is when you have children)

Skip the Whole Life Policy and put the difference in savings into your bank account or a retirement account. You control it 100%. Have full control of your money and stay away from Permanent Life / Whole Life / Variable Universal Life / Universal Life Insurance or any type of life insurance that has you putting extra money in for investing.

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