There is no more expensive purchase than that from which you derive no use. Term insurance may be just that sort of product. It is estimated that less than three percent of term life insurance policies ever yield a death benefit. Most people simply outlive the term for which they are insured. Are you going to buy something that you have a ninety-seven percent chance of never using? Uses for term insurance should be limited to situations such as a lack of available funds to pay for cash-value insurance, or a partnership may use term life to provide for continuing business expenses and a buy-out should one partner pass. Please understand that term is a great tool, but it’s usefulness has been hugely exaggerated.
Cash value life insurance, however, is a different story. There are several benefits to cash value that have been enjoyed by generations. But let’s talk first about why most advisers steer consumers away. The overriding negative to cash value insurance is that it costs considerably more in monthly or annual premiums than it’s term counterpart. One other drawback is that it takes time to realize the financial benefits in the form of actual cash value. These two reasons make it easy for even an inexperienced adviser to convince consumers that their money is better put to use in the market. But maybe we should consider the ramifications of swimming against the current for a moment. Even though it is much more difficult, it does make us stronger than swimming with the current.
Simply put, if you can commit to a few years of poor returns, cash-value life insurance is the best answer. Yes, I know all the rage is the A.L. Williams’ (Primerica) theory of “buy term and invest the rest.” This seems to be the mantra of the investment market. But have you ever wondered why that advice has been given? With whom do those advisers want you to invest that “rest”? Are the returns they promise based on fact or past market performance? Is the market guaranteed? Does your adviser make more commission from investments or insurance? (I’ll give you one guess.) These are the questions that you should be asking.
While cash value (A.K.A.whole life) insurance isn’t sexy and lacks sizzle, it provides a solid foundation that many investment vehicles cannot. First, it provides a death benefit for a premium cost that will never increase no matter how long you live. Second, once cash value begins to develop, it gains great momentum in a tax-free environment. Taxes are never paid on the death benefit or on withdrawals made from the cash value. Third, the cash value can be accessed at any time to pay for planned or emergent expenses without having to borrow from a bank, credit institution or having to tap into that 401k ladened with penalties and tax consequences. Essentially, with whole life you can become your own bank and be financially independent from financial institutions. Why pay the banks back with interest when you can pay yourself back?
There are a number of other advantages of whole life insurance such as retirement income, lawsuit protection etc… But inasmuch as whole life develops cash-value that eventually eclipses the amount of premium paid in, essentially, if you stick with it, you are getting life insurance at no cost.
Whatever you decide, don’t shy away from the research that it takes to make sure that you are doing what is right for you and your family. And be cautious of that bandwagon all-for-one, one-for-all advice that seems so pervasive in our current economic environment. Your situation is as unique as your fingerprint and should be carefully scrutinized by anyone offering advice. Remember, you are the one who ultimately has to live with these decisions.