Buy Term Invest The Difference

You can buy term life insurance, which is much cheaper than cash value life insurance, and invest the money you saved doing so into mutual funds or index funds with return rates that will always beat the return rate you will ever get from an insurance policy.

(Btw, in my last hub: Life Insurance With Cash Value I attacked cash value life insurance and won, in this hub I will show you the exact numbers! See the next section)

If you do that regularly, you will save up to more than the death benefit you bought at the conclusion of the term insurance. (in 20-30 years) We are talking about money in your own hands. Money that you can use anytime for any reason.

That way, you get the insurance when you most need it, and when it expires you will have saved up enough money that you can use for yourself or to insure yourself with it.

Term life insurance is the purest, most cost-effective form of insurance. Anything more than that is just the insurance provider trying to maximize the profits they will make off the customers. I will tell you why.

In the beginning, insurance was designed to protect the insured against financial catastrophe that he, his business partners, or his families couldn't afford to endure, in case it happens.

Today, it is still the case with every form of insurance except for personal life insurance.

Somehow, life insurance agents got smart and appealed to the customers' desire to beat the system: "if you buy permanent life insurance, you will eventually get the death benefit. You will always win! But with term insurance, the payout rate is less than 1% So you will not get it (if you don't die within 20 years), you will lose!"

The real issue isn't about winning a lottery here. It's about covering the risk of untimely death in a young age when your family needs your income the most.

When you get old, what you need isn't life insurance. Your liability will disappear as you mature: your children will leave and start their own families, your car and house are paid off, and you probably don't have any significant income to protect.

What you need when you get old is money.

If you buy term and invest the difference, you will get the money. If you buy cash value life insurance, the insurers will keep the money. And you will never see it.

In the next section let me illustrate the power of buy term and invest the difference in a realistic scenario I have seen way too many times when I was an agent.

John is 30 years old and his wife, Jane, is 28 years old. They have two children. John's salary is $70,000 per year, and Jane $55,000. They have whole life insurance policies with death benefits $150,000 and $120,000. The monthly premiums are $130 dollars and $90.

The prices can often be more expensive than my example here because there are a lot of (variable) universal life insurance policies nowadays. This type of policy is their evil version of "buy term and invest the difference". They realized that their whole life insurance scheme couldn't stand a chance against the truth, so they mimic it. Just like what Satan always do.

In 30 years, John will have around $75,000 in cash value and Jane $60,000. By then, inflation should be doing a great job reducing that to less than half the purchasing power we now have.

Did I mention that sometime in between the agent also get the children to sign up for universal life policies when they are 4-7 yr old? This would be their education funds. You will not see significant amount of money in this type of policy for at least 2 decades.

So who move the cheese?

The establishment!

They will make sure the management fee and surrender fee are big enough to reduce whatever you earn inside the policy to nothing. I have seen it a lot.

After that 2 decades are over, if the children couldn't afford the policies due to financial hardship such as student loans (Remember, the policies don't have enough money to pay for the tuition), they will use the investment funds to cover the insurance cost until it runs out of money and lapse. It runs out pretty fast.

Let me do a comparison for you:

Term insurance with the same amount of death benefits for John costs $25, and Jane $17 if you buy direct.

So here is the time table.

In 30 years, John and Jane should have enough money to insure themselves. They have so much time in their hand even thought they start in their late 20s, and the market average rate is 12% annually.(If you are confused about investing and have a talent at losing money on stock or other investment, then see my other hub: Why Buy Gold?)

Basically by the time their children are gone and their mortgage gets paid off, they will have at least $236,591.98 dollars in their retirement fund if they invest the difference non-stop in a mediocre index fund. At that time John is still 60 yrs old and Jane 58, and they have at least another 5 years to invest more money into their retirement fund.

This number doesn't include the money they will also save if they invest in some sort of educational saving plans for their children, which is also tax-deferred when it is growing and tax-free if the money indeed is used for education. Uncle Sam also chips in too so it double the growth!(depends on which governments you are under)

The difference is huge between the old plan and the new plan. In the old plan, you contribute to the agent's fat retirement fund and his children educational fund. In the new plan, you pay yourself and your own children. So does the new plan makes more sense?

Buy Cheap Term Life Insurance online now!