What is meant by buying term insurance and Investing the difference? Why Do People Still Buy Whole Life Insurance If Term Insurance Is The Better Option?
When it comes to Life Insurance, the CHEAPEST form of life insurance is term insurance, and if you’re sole intention for life insurance is to purchase it for a TERM while you accumulate wealth, then cheap affordable term insurance is the best option.
What most people are TAUGHT is to buy Term and invest the difference in stocks, bonds, mutual funds, and/or real estate, and this method works for a lot of people, but it doesn’t work for EVERYONE, and that’s because PERMANENT Life Insurance (Whole Life Insurance, Universal Life Insurance) offers far more benefits for a higher upfront cost of insurance.
What does buy term and invest the rest mean?
To understand where this buy term and invest rest idea came from, you must comprehend why whole life/Permanent Life Insurance came from. Peddlers of Term Life insurance usually will not tell their clients the downside to TERM Insurance. Term insurance is for a TERM, and the older or more DAMAGED a person gets the more expensive it is to renew your TERM insurance.
Most Insurance companies make the bulk of their PROFITS selling TERM insurance because you have to remember if you live out your term insurance policy and nothing happens to you, the insurance company makes out like a bandit.
Auto Insurance is a form of TERM insurance; if you never get into a car accident, the auto insurance company basically receives free money from you without having to do anything but send you legal documents to sign.
Term Life Insurance is basically the same thing as TERM auto insurance, and why WHOLE LIFE/Permanent Life Insurance was created was because the older people get, the more they need life insurance, and if the marketplace ONLY has TERM life insurance, what will happen is if you’re not RICH in your older years, you and your descendants will be destined for GENERATIONAL poverty, because the older you get the more EXPENSIVE Term Life Insurance gets.
So for peddlers of Term insurance, they created buy term and invest the difference, because they know that most people as they age will not be able to afford term insurance and if they’re not rich, Primerica for example, will not offer them TERM Life insurance past a certain age.
What is buy term and invest the difference Primerica?
Most people BASH Primerica because of their association with multi-level marketing, which is nothing more than income splitting your commissions; I personally don’t like Primerica because they only sell TERM INSURANCE, which for me is the worst thing about their company.
Whole Life Insurance was created because of the FAILURES of Term Life Insurance; the real reason that Whole Life Insurance is more expensive is because the insurance company HAS TO LEGALLY PAY YOU SOMETHING, as long as you pay your premiums.
If you live past your Primerica Term Insurance policy, the insurance company never has to pay you a DIME, so what you’ll often hear from these peddlers of term insurance is that the DEATH BENEFIT for whole life pays less, than the DEATH BENEFIT of term insurance, which is cheaper.
Yes, this is true, but a lot of Whole Life Insurance policies allow owners to BORROW money from the insurance company using their WHOLE LIFE insurance policy as the collateral for the loan.
Isn’t that borrowing your own money, many will argue? No, it’s not, because the whole life insurance contract, just like the TERM insurance contract, is still insuring your life in case you die, the difference is that the Whole Life Insurance, knowing the higher insurance costs will allow you to BORROW money from the insurance company while your whole life insurance policy gets compounded INTEREST.
For a lot of people, this sounds ridiculous; why should I complicate my life with Whole Life insurance when I can buy term and invest the difference? Well, with paid-up additions (more insurance to your whole life insurance policy) along with the savings components to whole life insurance and the compounded interest, you also don’t have to worry about your WHOLE LIFE insurance policy EXPIRING.
The expiration dates on TERM insurance are problematic if you outlive your insurance policies because, with inflation and your age, your term insurance premium will eventually be more expensive than the prices people who own Whole Life Insurance will be paying.
Worst than that, people with term insurance have a harder time using their term insurance as COLLATERAL, whereas a whole life insurance policy is often used as collateral, equating to whole life policy owners having more access to more money to invest.
So when Primerica says buy term and invest the difference, yes, it’s a good idea, but it’s a very linear way of looking at the financial world.
When someone says, buy term and invest the rest?
When someone says to me, buy term and invest the rest, I’ll reply, by permanent and invest the rest, buy Whole Life Insurance and Invest The Rest, even buy universal life insurance and invest the rest. Typically, I only recommend universal life insurance for people with a LOT of money. The value of universal life insurance is the ability to DUMP large sums of money into your insurance policy, which can actually save you money at death.
Universal Life Insurance is a great option for older people with a lot of money because life insurance is basically offering to pay for your death expenses on DISCOUNT as long as you send them the money upfront.
What I would say is if you can’t afford whole life insurance, stick with term insurance, but if you can afford Whole Life Insurance, always pick Whole Life Insurance over term insurance; term insurance, in my opinion, is for YOUNGER people with a family who can’t afford whole life insurance. But if you can afford whole lie insurance, buy it as soon as you can.
Notice that I’m not selling anything insurance-related here; I’m saying this from experience, not to sell you anything!
Interesting times ahead