Buy Term & Invest the Difference?

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Perhaps you’ve heard this old saying as it relates to life insurance.  The idea behind it was that someone could buy term life insurance for much lower monthly payments that permanent life insurance and invest the difference the payments elsewhere.  In reality this doesn’t work for two reasons.

First, buying term life insurance is simply a poor use of money.  The reason it’s so cheap is because statistically you won’t need it. And trust me, that’s a good thing because there is only one way to cash in on a term life insurance policy. Did you know that fewer than 1% of term life insurance policies ever pay a claim?

Secondly, most people are not skilled investors. Often they entrust others with this responsibility, and I am not sure why. When you think about it, if someone was that good at investing money, wouldn’t they just invest their own money for a living? (That’s a different topic.) Getting back to our topic at hand, most people are simply not skilled enough and don’t have enough time to learn how to invest money wisely.

For some odd reason, society has been brainwashed into thinking that permanent life insurance is a bad “investment” and this could not be farther from the truth. Let’s look at the upside of a properly structured whole life insurance policy.

1. You can get lifetime protection on a death benefit, as opposed to just a short term with a term life insurance policy. Who wants to outlive their insurance?

2. You can borrow from your insurance company without losing your death benefit, and also pay yourself back with interest as opposed to paying a lending institution interest.  That’s a double win by the way; you save on what you don’t pay and you earn what the bank would have earned.

3. You can pull money out of your whole life policy with no tax consequences. This is not the same for many other types of retirement funds, those just defer the interest until you start to take it out.

If you currently have a term life insurance policy, I recommend talking to an insurance advisor as soon as possible to discuss getting a plan that is less focused on your death, and more focused on you retiring well. I am connected to folks that have helped me and can do the same for you, and I am happy to make an introduction if needed.

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