Jayson Lowe explains why dividend-paying, participating whole life insurance is preferable to term life insurance for building cash value and permanent coverage. He contrasts ‘owning’ participating whole life (permanent insurance that accumulates equity) with ‘renting’ term life (temporary, low-cost coverage with low probability of payout and rising premiums).
When there's a conversation about cash value and then a question like, is it better to have participating whole life insurance or term life insurance? Well, the answer is dividend paying, participating whole life insurance. Because when you own term life insurance, you don't own it, right? You're just renting the benefit. So term life insurance definitely has a purpose. You're renting it for a specified period of time. So you might purchase a million dollars of death benefit, you might rent it for a period of 10 years, 20 years, or 30 years, but the likelihood, the probability of that term life insurance policy paying out a death benefit is less than 2%. That's why you can purchase term life insurance at such a low cost, because the insurance company understands that the probability of a payout is less than 2%. And as you age closer to your mortality, the cost of that insurance rises to the degree where most often the policy owner cancels the coverage, just forfeits the coverage because it becomes too cost prohibitive. Whereas with dividend paying, participating whole life insurance, it's permanent. You are insured for your whole life. So the insurance company is fully aware that the payment of the death benefit is assured, provided that the policy is in force at the time that the life insured passes away. And so it's important to understand the distinction between owning something and accumulating equity on a daily basis compared to renting something where you pay to rent but you never own anything.
