Buy Term Invest The Difference

Buy Term and Invest The Difference?

We have all heard the phrase buy term and invest the difference when researching what options we have when buying life insurance. It has become one strategy which some influential advisers have come to use and preach. In this article, I want to look at some of the holes in the strategy which so many of us have come to know.

 

1.) One question, why are you buying life insurance in the first place?

 

Are you buying life insurance for a pure death benefit? What about a policy to cover estate taxes so that your assets will be passed to your love ones “tax free”? Are you looking for temporary protection for your family?

These are all questions your financial adviser or life insurance agent should be asking you. Furthermore, they should be looking at all aspects of your life to diagnose your problem you are trying buy life insurance to fix.

If you are buying life insurance purely for a death benefit, Term life insurance may not be your best choice. %95 of Term Life Insurance Policies do not pay a death benefit.
So when making this choice, ask yourself, “Am I banking on being in the %5 which will have a pay out to your beneficiaries?”.

One of the things many advisers fail to do when selling a Life Insurance Product is that they do not fully explain how each product works. Term Insurance can be a cheap way to provide protection, but in the latter ages of 60 and on, the premiums equal of exceed what you would pay in a permanent life insurance product. Many, if not all life insurance companies have a cap at which age you can buy a term life insurance product.

So make sure you know this before being sold on a term product which you may not be able to keep when your current Term Policy is up.

 

2.)Investing takes time, patience and knowledge

 

Investing is risky. There are no guaranties investing in stock, mutual funds or other securities. This is not a PSA telling you to not to invest your money. What I will say is the interest on a Whole life product will give you a guaranty, and on top of that, if you get a whole life policy from a mutual or fraternal company you may get an annual dividend.

A permanent policy should not be your only investment vehicle but for most its a “dummy proof” way to accumulate cash. The problem with investing in the money market is the uncertainty. What most people do not realize when confronted with the buy term invest the difference strategy is investing can be a long process to see your expected returns, and the temptation of cashing in the stock or mutual fund you bought a year ago maybe hard to resist which out proper discipline.

Research some of the horror stories about when the market crashes and people lose most of their retirement and have to wait to retire because their retirement plan was in the market. Some of the objections you get when you try to explain to wealthy people

 

3.)Keep the face amount of what you want at death in permanent insurance

Term insurance works off of the mortality table of the length you buy the term. You buy a 20 year term at age 35? Your premium is based off of age 35-55. At 55, you renew the term, The 20 year term now is based off of age 55-75 and goes up dramatically.

People see of it as a cheap way to find coverage, which it is. But they negate the fact they will get older and that premium will continue to go up until the day that they are too old to renew the term.

One strategy which some may not have looked at is writing a Whole Life Policy with a Term Rider. You use the Whole life as your face amount you would like to have at death for the rest of your life and attach the Term Rider with temporary protection. This way your permanent policies premium will not go up (in the event you would have exchanged the Term Policy you would have gotten in place of the permanent) and you still have temporary coverage which will be much more affordable as term insurance.

Hopefully you have gotten something from this article and I hope I got you too look at some different options in buying Life Insurance!

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