Whole Life vs Term (critical illness)

I read a post by fellow IFA (Martin Lee of Promiseland, aka the Lion Investor). Being a personal friend, I respect him in well regard of his views on investment and personal finances.

He recently wrote a piece on Whole Life (insurance) vs Term.

Other than pointing out the opportunity cost of whole life insurance vs term insurance, I wholeheartedly agree with him that whole life insurance is, in my opinion, solely for the purpose of lifetime critical illness protection. Beyond the lifetime protection, whole life insurance offers an inflation hedge to maintain real dollar value protection. Of course, this hedge is only effective as the bonuses (reversionary & terminal) get accrued over time and provided the insurer delivers what has been projected.

Certainly, there will those who disagree and stand convinced that 'buy term (insurance), invest the (premium) difference' works to their advantage. Caveat being the ability to invest at a consistent compounded rate of return over many years.

My point here is not to take sides.

Rather, I hope that those who choose 'buy term, invest the difference', pause and ask themselves: 'What if 10-20 years down the road, I regret my initial decision and wish I had opted for lifetime critical illness protection via a whole life policy?'.

This is not asked to question the individual's investment ability as everyone undertakes their own investment operation differently. Some go for dividends as primary source of returns; some opt for opportunistic capital gains; some reinvest their income in conjunction with a regular investment plan. Regardless of investment approach, some will benefit more from their investments and others less than expected. Bottomline is, the health condition of the individual might have changed (for the worse), thus affecting his/her insurability.

How would you like it if being informed that you face an exclusion or a significant premium loading (or worst, both!) when you decide to apply for a insurance policy? Even if premiums are not an issue, an exclusion would heavily discount the transfer of risk, isn't it? [Think high cholesterol and high blood pressure; not uncommon conditions when approaching middle age]

Hence, I would encourage persons who are undecided to instead opt for a term critical illness protection plan, but comes with a convertibility option. This allows the insured the choice to convert his/her policy to a whole life policy later with no prejudice to his/her insurability (even if his/her health has deteriorated). If one has accumulated sufficient investment experience and fruitful investment returns, he/she can jolly well drop the convertible rider at any time. 

This approach works well too for those who are pro-whole life but are budget tight. A short term renewable term critical insurance plan with convertibility option could suit their needs and budget.

No right or wrong answers here. Only choices that the individual makes (that hopefully he/she will not regret in future).