Term vs. Permanent


Let’s look at the truth about life insurance.

“Buy term and invest the difference”. Many of us have heard this saying before. Why are we being taught something that is not good for the majority of our population? The biggest argument for this is the need for life insurance. Some “financial experts” believe your need for life insurance goes away in retirement.

If you imagine for a moment you just turned 65 years of age, you are now beginning the chapter of your life called retirement.

Is your house paid for?

In an article based on a survey in 2009, 50% of people between the ages of 55-64 have a mortgage. In 1989 27% of people above the age of 65 had a mortgage, today just over 47% have a mortgage. Staggering! Almost 100% more people in only 18 years time.

At retirement age will all of your children be out of your home?

Look around you. Perhaps you have a friend over 60 who has children reliant upon them. Maybe one such case is you.

If you had $80,000 saveed would you feel comfortable retiring?

A survey of more than 1.8 million employees of 72 large US employers are expected to have accumulated less than 80 percent of their projected needs at age 65. According to the report, Total Retirement Income at Large Companies: the Real Deal 2008

The point in this is that for most of us the need for life insurance exceeds age 65.

What would happen to the widow who lost her husband with $80,000 in savings, a lapsed term insurance policy and a home mortgage of $100,000?

Comparison of Whole Life and Term Insurance

In a long term comparison of Term and Whole Life insurance, Whole Life Insurance is far cheaper and much more valuable.

“The story of 2 brothers, Jake and Steve.”

Both brothers purchase insurance policies in January of 2012 at the age of 35. The difference is Jake bought a $500,000/30 year term policy and Steve bought a $500,000 whole life policy.

After 20 years, Jake and Steve are discussing their finances. Steve brings up how much his $500,000 whole life insurance policy was costing him. ($6,200 per year) Jake is amazed and says proudly “I only pay $990 per year for $500,000 of life insurance, you need to change it”.

You are furious with the agent who sold you your policy. You call him and tell him you want to cancel the policy because you are getting cheaper insurance. The agent calmly says, “Ok, we will cancel the policy and you will get your cash surrender value”. “Cash Surrender Value?” you ask. “Yes” says the agent.” You have $124,000 in the policy you will receive upon surrendering it”.

You hang up and begin doing simple math and realize that over the last 20 years your insurance has not cost you anything. You have paid $124,00 in premiums and are getting all of that given back to you. What did Jakes’ policy cost? $990 for 20 years is $19,800, and if he cancels his, he gets nothing back.  Not only that but Jake will no longer have any insurance in 30 years as he will most likely not be able to afford the premiums if he wished to get a new policy at age 65.

When purchasing financial products it is vitally important that we understand the pros and cons of each product we are comparing.

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