When it comes to life insurance, many financial advisers out there suggest buy term and invest the difference. But that may not be the best strategy. And today we’re going to talk about why.
The main premise behind buy term and invest the difference is that the cost of whole life insurance is high and the cost of term life insurance is low. So if you have that in your budget, you’re able to still afford the death benefit, but you could invest the difference in the prices in the mutual funds and potentially earn a higher rate of return. Also, the premise assumes that you won’t need the life insurance coverage past a certain point.
The first issue with the strategy of buy term and invest the difference is real simple. They don’t invest the difference. So the problem is you’re setting up a strategy that you’ll invest the difference and you don’t. Now, maybe you will start out and invest the difference, but something is going to pop up in your life that’s going to prevent you from continuing to invest the difference. I don’t know what those things are, but it could be where you have a medical emergency, you’re buying a new house, or you’re sending your children to private schools. Anyway, the cash flow is pinched and the easiest thing to stop is the investment. So that’s the first issue.
The second issue, they never address, is what happens when there’s a significant amount of market losses and your account tumbles by 40, 50, 60%. Are you going to still have the diligence to continue to put the money into that account?
The third issue is what if you need life insurance beyond the guaranteed premium period? Let’s say 20 years. They tell you, you won’t need life insurance after that time period. But what if you do? And what if the reason you need the money or you need the insurance is because you didn’t get the rate of return that they promised. So we’re going to give you the benefit of the doubt that you will invest the difference. But life has a way of happening. And between market losses, between taxes, and having to access your money, will you continue to have the money that you’re thinking you’ll have? And more importantly, will you have the diligence to put the money away?
Keep these financial rules in mind.
- Start saving now.
- Never stop.
- Never drain the tank.
Buy term and invest the difference violates these key principles to any sound financial plan. Exactly how does it violate the principles? Well, at any point, you could stop saving in the mutual funds, whether your cash flow gets pinched or the market’s down so you’re not motivated to continue saving.
Number two is the tendency is when you need money for a car repair or a new car or to send your kids to school, that money is easily accessible, so you just sell the mutual funds and liquidate the account. But here’s the key you’ll never see the interest you don’t earn on that account. Our process uses a specially designed whole life insurance policy designed for cash accumulation to help our clients reach their financial goals. This product is great for goals because it sets them up to save on a consistent basis and allows them complete liquidity, use, and control of their money so they’re able to access their money without stopping compounding. They’re never draining the tank, but they still have access to their money with no questions asked.
Most importantly, you’ll have the flexibility to stop making payments, reduce your payments, and still continue to earn uninterrupted compounding on your money. This method is great because it locks in your insurability and that level premium cost at a younger age than with the by term and invest the difference method.
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation so you could reach your financial goals, be sure to visit our Web site at Tier1Capital.com to get started today. Feel free to schedule your free strategy session or check out our free web course, The Four Steps to Financial Freedom.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.