Buy Term Insurance & Invest the Rest
The only funny story I can think of regarding life insurance is from the Woody Allen movie “Take the Money and Run.” One of the scenes shows a petty thief, played by Allen, being locked up in solitary confinement with a life insurance salesman for robbing a gumball machine. Talk about cruel and unusual punishment!
Sitting with a life insurance agent for a couple of hours does not sound like an enjoyable evening to me. The double talk mixed with technical jargon is enough to make any husband and wife glaze over after 15 minutes. I honestly think insurance companies make life insurance sound more complicated than it really is. Why? Because you don’t want to appear stupid, so you go along for the ride and purchase something you can’t even explain to your children. We all know we need it, but are we making an informed decision when we buy life insurance?
I was fortunate enough to sit in on a Sunday School class on life insurance when my wife and I were first married. All the way back in the Dark Ages! I will say, the class was enlightening and informative. I truly learned a great deal. For instance, term insurance makes the most sense for most people. It’s relatively inexpensive depending on your age and health.
On the other hand, cash value life insurance, AKA whole life or universal life insurance, is much more costly than term insurance. The reason is that cash value policies accumulate savings inside the contract. Term has no cash value or savings. That being said, why would anyone want to buy term insurance with no savings versus a cash value policy?
There are two reasons why:
#1 The cost. A 25-year-old male can easily buy a $100,000 term policy for about $100 - $200 per year for 20 years. If the same male spent the same amount of money on a whole life policy, he might only get $25,000 in coverage. Big difference, wouldn’t you say? But what about the savings plan that comes with a cash value policy? Good question. That brings me to the second major reason whole life insurance isn’t the best deal for most folks.
#2 In almost all cases, the insurance company keeps the savings portion of the whole life policy when the insured dies. An example is in order: Say you had a $50,000 whole life policy with $10,000 built up in the cash value portion of your policy. Now say you die. What do your beneficiaries receive? Fifty-thousand dollars, the death benefit only — the $10,000 cash value is kept by your insurance company. Sound like a good deal to you?
That’s why it is almost always better to buy term and invest the difference into an IRA or Roth IRA.
Please make sure you have enough life insurance to protect your family if you were to die prematurely – after all the mortality rate in America is still 100%! And by all means, make sure you have the right kind of insurance.
The Apostle Paul says in I Timothy 5:8 (NIV): Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever.
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Blessings!