Do I Need Term Life Insurance or Whole Life Insurance? – Amy


“Dear Steve,

Do I need term life insurance or whole life insurance? I have both and I have cash value in my whole life policy that I am considering cashing in to pay off my credit card debt.

Is it a good idea to cancel my whole life policy to pay off my credit card debt so I can quit my full time job to help out out my husband’s business and possible start my own bookkeeping business?


Dear Amy,

Excellent question. I am not an insurance agent but I can share my point of view on the subject.

A whole life policy provides a death benefit if the insured person dies and has an investment component attached to it. That’s how it built up cash value for you.

A term life policy only provides a benefit if the insured person dies and is significantly cheaper than the whole life policy.

In your case the whole life policy created a forced savings account that left you with a benefit that you can now use to pay off your debt. And the nice thing about the cash value or payoff you are going to take is that it does not need to be repaid. The amount of the loan will be subtracted from the amount paid out in case of your death, if you kept the policy. You could always cancel the whole life policy, pay off the debt and purchase a second term policy to bring you back to the same level of coverage.

The way I look at insurance is that it should provide enough money to dispose of your body when you die and to replace the income that you would have brought into the family if you had not passed away.

Many people have replaced their whole life policies and got further ahead financially if they replaced it with a term policy and invested the difference in the cost between the whole life and term policies.

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In your case, that investment would be in yourself. You need to ask yourself what the value is of being able to quit your job, help your husbands business and potentially start your own bookkeeping business. That might just be a really valuable opportunity for you.

If you think that might improve your enjoyment and quality of life, then that is a significant benefit.

Please let me know what you decide to do, I’m curious and interested.


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