Making Sense of Life Insurance - Term, Whole or Both?

In this episode of the Happiness in Retirement podcast, I delve into the critical topic of life insurance, specifically focusing on the differences between term insurance and whole life insurance. Building on our previous discussion about the four risks to retirement, I emphasize the importance of having adequate life insurance to protect your family from the financial impact of dying too soon.

I explain the concept of economic life value, which highlights that your ability to earn income is your most significant asset, especially when you're young. This understanding helps determine the appropriate amount of life insurance coverage needed. I advocate for everyone to consider economic life value insurance, despite the common barriers of cost and awareness.

We explore term insurance, which provides coverage for a specified period and is generally more affordable, making it suitable for young families. However, I caution that most term policies do not pay out, as they are often not in force when needed. On the other hand, whole life insurance offers lifetime coverage, builds cash value, and guarantees a death benefit, but comes with higher premiums.

I discuss the pros and cons of both types of insurance, emphasizing that the choice between them should align with individual financial situations and goals. For those who may have a permanent insurance need in the future, I recommend purchasing convertible term insurance that can transition into whole life insurance without the need for additional health assessments.

Ultimately, I stress the importance of having economic life value insurance and encourage listeners to consider their unique needs when choosing between term and whole life insurance. I invite everyone to reach out for more information and resources on insurance and retirement planning, and I hope you find this episode insightful as you navigate your financial future.

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# Swell AI Transcript: riverside_bill__ aug 23, 2025 001_bill_del-sette's st.wav

SPEAKER_00:
Welcome to the Happiness in Retirement podcast, where we help you turn your retirement dreams into reality. Each week, we'll dive into smart financial strategies, lifestyle tips, and expert insights to help you build a fulfilling and secure retirement. Whether you're planning ahead or already enjoying retirement, this is your go-to place for inspiration and practical advice. So sit back, relax, and let's make your golden years the best years.

SPEAKER_01:
Hello and welcome to this episode of the Happiness in Retirement Program podcast. My name is Bill Del-Sette. I'm the host of this podcast, the creator of the Happiness in Retirement Program and founder of Del-Sette Capital Management because the road to retirement should be an adventure, not a survival strategy. Well, today I wanted to pick up on a conversation we had in our last podcast, where we talked about the four risks to your retirement. And we talked about one of those risks as being dying too soon. We also talked a little bit about life insurance and how that can be used to protect your family from that risk. Well, today I wanted to talk about two different types, and that is term insurance and whole life insurance, two very different types of insurance, term insurance simply means that it will stay in force for a term of years, a period of time. kind of like temporary insurance. And whole life insurance is a form of permanent insurance designed to stay in force for your entire life. Well, before we get into the pros and cons of each type of insurance, I want to talk a little bit about what is the proper amount of life insurance. And in the prior podcast and some other podcasts, we talked about this idea of economic life value. Well, what does that mean exactly? It just simply means that, especially if you're young, your biggest asset is your ability to earn income. And if that ability to earn income goes away, then you have lost a massive asset, massive asset. And so technically that is the amount of life insurance you should have on your life for your family. For instance, you plan on working to age 60, you have 30 years of earnings. And let's assume that your starting salary is $100,000. And just for the sake of today, let's assume that your income stays at that 100,000 for 30 years, that would be a $3 million life insurance need. Now, we're not doing what's called a present value calculation. The correct way to do that calculation would be to factor in not only your starting salary, but what your expected raises would be in the future, cost of living adjustments, et cetera, et cetera. And also benefits like health insurance for your family and things like that. And you bring that number back to what we call a present value. All that really means is a pot of money growing at some reasonable rate of return, maybe 5 or 6%, could replicate your salary for your family should you pass away right now. So that is economic life value and that is truly what a family loses when someone passes away. That's the true cost. Why don't people generally have economic life value insurance? Well, cost, of course, right? It's cost. Now, think about this for a minute. If you own a home, chances are, hopefully, you have replacement cost on your home. In other words, your home, if it burns down, if you've done proper insurance planning, you would have replacement cost protection, meaning if it would cost $600,000 to replace your home, rebuild it, then that's what you're insured for. You wouldn't have your home insured for $100,000 if it cost $600,000 to rebuild. So why on earth on your life would you choose any other amount of coverage except economic life value? And again, one of the issues is cost. The second issue is most people don't look at things that way. So we are big advocates of everyone having economic life value, life insurance on their life. And by the way, a subject maybe of another podcast we'll talk about, even if you don't work, if you're a stay-at-home parent, there is certainly an economic value to that too. Okay, so we've established what we think the correct amount of insurance is. Now let's talk about the difference between whole life insurance and term insurance. And you may have heard this concept called, well, buy term insurance and invest the difference. That just simply means because whole life insurance premiums are, they're more than term insurance. But we're going to see that that may be a false analysis in a minute. In other words, assuming that whole life insurance is, quote, more expensive, you have to look at the big picture, okay? So, well, let's start with term life insurance. Term insurance, you're just simply buying coverage for a specified term of years, a period of time, 10 years, 20 years, 30 years. If you pass away during that term, your beneficiaries receive the death benefit. If you outlive the term, the policy ends and that's it. It's kind of like renting an apartment. You're paying for coverage while you need it. When the lease is up, you don't own anything. Now, technically, Okay, if you're just protecting an income stream, when you retire, in theory, and hopefully in practice, you have saved enough money now that your biggest asset is no longer your income, it's your assets that you're going to use to live on, so you don't need that insurance anymore to protect an income stream. Okay. You may need insurance to protect your assets. We're big believers in that. But for this conversation, that's why term insurance could work. Okay. And it's also cheaper in outlay. Okay. Cheaper in outlay. I'm not going to say cheaper overall. but cheaper in outlay than whole life insurance. It's not complicated. It's just straightforward coverage. Very similar to homeowner insurance. If you don't have a fire, your homeowner insurance doesn't pay. Your premium is a throwaway. And we hope that it is. Same with term insurance. If you don't die within the term, then the insurance goes away. So it's temporary. And it does get more expensive as you age out because your chance of dying is higher. There is also no cash value buildup with term insurance. Now, whole life insurance, unlike term, it lasts as long as you do. Assuming you pay the premiums, it'll last your entire life. And in addition to the death benefit, it does build a living value called a cash value. Think of it as a savings account inside the policy. Part of your premium goes towards the cost of insurance and part goes into the cash value. So some of the benefits of whole life insurance are first that your beneficiaries are guaranteed to get a death benefit no matter when you pass away. Now that's really important. One of the things that insurance companies count on with term insurance is that the vast majority of term insurance never pays out. It never pays out. And when you need it the most, it's not going to be there because it's going to be so darn expensive that you can't afford term insurance when you're 80 years old, let's say, assuming you could even get it, which you probably would not be able to. So whole life insurance is lifetime coverage. It's guaranteed to pay out as long as you own the policy and pay the premiums. It also has a living value that you can borrow against, withdraw from, or even use to pay premiums later in life. And whole life insurance has stable premiums. The premiums are fixed and the policy provides a forced savings vehicle. Now, what are the cons of whole life insurance? Well, the outlay can be five to 15 times more than four term insurance for the same death benefit. But remember, you've got the side account, the cash value build up. and you've got the insurance for life. Whole life insurance is certainly more complex than term insurance in terms of loan provisions, dividend options, et cetera, et cetera, and the cash value is not gonna grow. like the potential in a diversified stock mutual fund or exchange traded fund. It is a tool just like any other tool and it works best when used for the right job. So back to this buy term and invest the difference, okay? In other words, don't pay the higher premiums for whole life, just buy cheap term coverage and take the money you save to invest in the market. over decades that could grow into more than the cash value of a whole life policy. Now, remember the cash value of a whole life policy. is not gonna grow like the stock market potentially can. It's gonna grow more like a savings account. So this could be solid advice for a lot of families, especially young families juggling mortgages, childcare, and saving for retirement. In other words, young people probably can't afford economic life value coverage, that higher amount of insurance to cover your income, the correct amount of insurance in our opinion, with whole life insurance. They can probably only afford term, and that's okay. I want you to consider again that term insurance, the vast majority of term insurance, never pays out. It never pays out. In fact, studies have shown between 1% and 2% or so of all term insurance pays out. That means you run, call it a 98% chance if you're a young person, Let's say that the insurance never pays. It never pays. It's a throwaway. Now it doesn't mean you don't need it. It's the same with homeowner insurance. Your chance of your home burning down, I think is somewhere in the neighborhood of 0.3%. And yet you still have homeowner insurance. that will pay in the event of a fire, something like that, a disaster, you still have it. And the reason why is it's not the probability of the event that matters as much as what happens if the event occurs, right? So, what I'm saying is certainly term insurance can make sense for a lot of folks because they couldn't afford permanent whole life insurance and the economic life value death benefit amount. Now, what we recommend at DelSetti Capital generally is if you think you're going to have a permanent insurance need down the road, then you buy quality term insurance that has convertibility into a quality whole life insurance policy. Many good. whole life insurance companies have convertible term insurance, that it will convert to permanent insurance. Key words here, without evidence of insurability. So regardless of what your health is, if you convert that term insurance within the convertibility period of years, you don't have to go through underwriting again to prove that you're healthy. It doesn't matter. So recommendation for a lot of young folks, buy term insurance for whatever term of years you plan on working, maybe 20 years, maybe 30 years, but buy insurance that is convertible to quality whole life insurance. Okay, that's key. Now, most people getting back to this buy term and invest the difference, most people never actually invest the difference. So it's kind of a moot point. They spend the difference, the value of the guarantees of whole life, the four savings, the stability and guaranteed death benefit. No matter when you pass away, matter. So who should consider each? Let's bring it all together. Term life insurance, you're a young person, you can't afford a whole life insurance. What we like at Del-Sette, so in a perfect world, in our opinion, everyone would have economic life value, whole life insurance, okay? But tell that to a 30-year-old raising a family. with a mortgage, they're just not going to be able to pay those premiums. So, term life insurance in this case might make sense. It does make sense. It's more important that you have the correct amount of insurance, especially when you're young and working, than the kind of insurance. Your main goal is to cover that income replacement and you'd rather invest in retirement accounts for the stock market than build cash value inside a light policy. That's term insurance. If that, you value that more than term insurance might be a good idea. However, you are going to die, my friends, at some point. You are going to die and permanent life insurance. will cover that guaranteed risk if you pay the premiums and keep it in force. If you have a high income and let's say you're already maxing out a 401k, other tax advantage savings, then the cash value certainly can be a nice savings vehicle. Now, I want to emphasize that if there is no protection need, do not buy life insurance. Do not buy permanent life insurance just because it can be a savings vehicle. Uh-uh, we never do that. If there's no life insurance need, if there's no economic loss when you die to somebody, then don't buy insurance. Don't buy it as an investment vehicle, period, because those numbers, in my opinion, just don't work. However, if you have a life insurance need, then certainly, certainly, then you have to choose between term and whole life. Many people choose whole life insurance because they want to have that guarantee for life. Now, what ends up happening as you age out, in particular if you've been successful throughout your life financially, is you end up with a big pot of money. And so, Now, you may not have an income replacement need at 60, but you might have an asset protection need. And so life insurance now can be used for asset replacement. In other words, many people, when they retire, they now are kind of torn because they have a large amount of assets, but maybe they want to leave an estate and a legacy to their kids. Maybe they want to give to charity. But they also want to enjoy their money. So the nice thing about whole life insurance, I view it as a, as a permission slip to spend down your assets, enjoy your money and leave a tax free, potentially a state tax free, but definitely income tax free. death benefit to whomever you want. Now, one more key consideration. Many whole life insurance policies now also have a long-term care insurance benefit. In other words, you can use that whole life insurance to pay for long-term care. Now, I'm not going to get into the intricacies of that, But just bear in mind that that is another benefit that many, many whole life insurance policies now can be used kind of like a Swiss army knife for financial planning, I guess you could say. Certainly has the death benefit in your working years. You can use the cash value later on to supplement other income if you like. You could use the death benefit or the cash value or both in some cases to pay long-term care expenses. Okay. You can also use it to pay debt taxes for your estate. So at the end of the day, it's not that one is better than the other, one is bad and the other is good. It's about matching the tool to the job. So the bottom line is, first and foremost, folks, make sure you have economic life value insurance on your life. do the needs-based approach to life insurance planning. And a needs-based approach just simply means, hey, you know what? If I die, I want my husband or wife to have two years of my income covered. I want to cover the kids' college and pay the mortgage. That is not economic life value. shoot for economic life value coverage, which is almost always going to result in more coverage than a needs-based approach, and then have as much whole life insurance, in our opinion, as you can to cover that. Term insurance is okay, too, to cover the need. The most important thing is to have that economic life value. Now, remember, whole life insurance does, quote, cost more, or the outlay, I should say, is more, but it comes with guarantees, lifetime coverage and cash value, living benefits. play a huge role in long-term financial or estate planning. So my advice is start by asking what's the problem that you're trying to solve. If it's just simply to protect your family during your working years, term insurance might do the trick. Keyword convertible to a quality whole life policy. If it's about long-term planning, which we do here at Del-Sette Capital, happiness and retirement program. If it's about long-term planning, wealth transfer, estate planning, all of that, living benefits, whole life insurance could make sense. Remember, you don't have to choose only one. Many, many people that we work with have both. Even if you're a young person and you have a big economic life value debt benefit for your family, that's the need. If you can afford it, buy some whole life insurance. Smaller whole life policy that is convertible or a smaller whole life policy combined with term insurance that is convertible to whole life. Okay, so that's it. Term versus whole life insurance. Hopefully this made sense. As is often the case with these podcasts, it's done off the cuff, on the fly. There's no script. I want to add one more thing. Full disclosure, we are paid a commission when we sell term or whole life insurance Any kind of insurance that we sell here at Della Citi Capital, we are paid a commission. So you might view that as a bias. However, certainly I'd love to show you the features and benefits of term and whole life insurance and help you figure out what is best for you. Hope you enjoyed this episode. Please subscribe, share it with a friend, leave a review. It really helps us grow the show. And if you'd like more resources on insurance, retirement planning, building a financial future, check out our website, www.happinessinretirement.com. Until next time, I'm Bill Del Setti. And remember, good financial planning isn't about products. It's about purpose. Talk to you next time. Bye-bye.

SPEAKER_00:
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. That's it for today's episode of the Happiness in Retirement Program podcast. We hope you found some valuable insights to help you create the retirement you deserve. If you enjoyed this episode, be sure to subscribe, leave a review, and share it with someone who's planning for their future. For more tips and resources, visit happinessinretirement.com or the Del-Sette Capital Management Facebook page. Until next time, here's to a happy, healthy, and financially secure retirement.