The best answer to this age old question is…. “maybe”. I hear these type of phrases often, but the fact of the matter is that statement is too generic for the masses. It’s a great training aide – in that new agents can memorize these instructions with very little effort and regurgitate them to all of their friends and family in hopes that someone will understand the idea and take action. Spending less than $100 for a $1 million dollar death benefit sounds better than paying $250 per month for less than a $500K death benefit. This argument has merit. The extra dollars that the client saves each month by purchasing term insurance accumulates very quickly. If you can illustrate that difference going into a mutual fund getting a 6-12% compounded return on investment every year, it doesn’t take a rocket scientist to see the benefit there. Also, if there is an untimely death – the beneficiaries will get a much higher payout. Let’s face it, in hard times we all are looking to save as much money as possible, and this concept is a valid option.
There are many different types of term insurance out there. For example, you can get a 1 year, 5 year, 10 year, 15 year, 20 year, 25 year, and 30 year term insurance policy depending on what company you decide to go with. The longer the term is, the higher the monthly premium will be. If you get a 30 year term, for example, you will pay the same monthly premium for the entire 30 years – and then the payment will increase in the following year. Same goes for the 20 year… and the 10 year, and so on and so forth. The prices of these term insurances will vary depending your age, health, sex, and even the insurance company you decide to go with.
There are a couple of considerations one should have with this kind of philosophy. The first consideration is the validity of that other fund that’s being illustrated. I have a tremendous pet peeve with many of these illustrations. It is VERY RARE that any fund will have a 6-12% compounded interest history. Most of the time these numbers vary and this seriously undermines that bottom line of what is shown. In other words, it’s bullsh*$! Now, that doesn’t mean that it won’t be a positive investment, it just means that compound interest looks EXTREMELY attractive when illustrated. Beware.
Another consideration is the idea that you will live beyond the term of the policy. If you live beyond the term, you may find yourself letting go of your policy because it becomes too expensive to keep. When you retire, you will most likely be looking to reduce costs – not increase them. Approximately 1% of people with term insurance die and pass along this death benefit to their beneficiaries.
1%. Are you feeling lucky? or I guess that would be unlucky…
Insurance is not an investment, and therefore shouldn’t be compared to one. Permanent insurance comes in many different forms such as whole life, universal life, index universal life, and variable universal life. Each of these different types of insurance policies work completely different from one another and should be examined thoroughly when considering your specific situation. Are you looking at supplemental retirement planning? Business continuation? No more insurance payments after a certain period? Infinite banking concept? Disability protection? Mortgage protection? College funding? Guaranteed insurability in future years? Buy / Sell planning for the business? Employee benefits? “Golden Handcuffs” for star employees? Tax deductions?
These different types of permanent policies shine in different situations. Consult your experienced insurance agent to go over all of the options and plan for your specific situation. The fact is, you might want to “buy term insurance and invest the difference” – just do it knowing all of the other options as well.