Surely you must have heard of both types of Life Insurance, right? There are several other types that are just variations of Annual Renewable Term Life Insurance. What it boils down to is Cash Value and Term Life Insurance. There are many different companies that have many different exclusions in their many different policies, but I’m going to be general, while specific, as to what you need to know in order to secure your financial future.
So let’s talk about the good ole Cash Value Life Insurance. Do you have it, but not sure what it is? Well, let’s understand how much of a …ripoff?.. no, it’s more than that, it’s a financial life ruiner, I can say. Okay..
The concept with Cash Value Policies is that they are designed to have a death benefit face amount and an investment or “cash value” amount. Sounds good, right? Well, ladies and gentlemen, NOT SO MUCH! During the first three to five years, the policy builds no cash value. My dear grandparents were paying $125 a month for only $50K in coverage when they surrendered their policy after having paid for FIVE whole years on it. They received money back to the tune of Four dollars and some change. That sounds like a deal! Wow!
Now, after that three to five year period, your “cash value” does grow, but only by three to four percent. That’s only inflation. So you’re still in the red with Cash Value policies.
Finally, you’d want your savings to earn 8%, right? Ok, that’s good. WELL, what if you have to PAY to access your savings, to the tune of 8% interest? Yes, that would be Cash Value. The “cash value” of a Cash Value Life Insurance policy (AKA Whole Life,too) is available to use, BUT you have to pay an average of 8% to access your own money that basically had a negative rate of return in the first place! That’s it for Cash Value, my friends.
Now, have you heard of Term-Life Insurance? This is where you have a flat rate throughout a specified term, such as 35 years(Actually, my company is the only company that will offer 35 year terms!) But your premiums are fixed with most companies. For example, I am 18 and a nonsmoker. I pay $23.34 a month for $250k in coverage for 35 years with Primerica Life(they are a subsidiary of Citigroup). That is not very much at all. The concept with Term-Life is to “Buy term, and invest the difference”. Now, this is the best actionable concept out there. In order to have $3.5 million saved for retirement by age 65, I save $68 bucks a month. Want to know how? I invest with Primerica. Now, this is why you don’t want Cash Value. You get no return on your money. If you buy term and invest the difference, you can take that extra money, and invest it into the global economy with mutual funds. Did you know the global economy averages an annual 12% return? The reason you want to have life insurance in the first place is because one of two things will happen: you’ll either die or live to retirement. If you buy term and invest the difference, you are prepared the best way possible for both possible events. You’ll have the protection you need, and the cushion for retirement that you need too! It excites me to share this information 🙂