Should You Really Buy Term and Invest the Difference?

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Should you buy term and invest the difference?

One of the most pervasive pieces of financial misinformation spewed out by financial pundits over the years is the venerable and oft-repeated mantra:

“Buy term and invest the difference”

You’ve probably heard it on television, from some rich blonde financial entertainer who doesn’t have a clue about how real people live.

Maybe your mom or dad passed it on to you because they heard it somewhere.

Your insurance agent, plumber, hair stylist, or fishing buddy might all be true believers in the logical fallacy of buying term life insurance and investing the difference.

When you dig a little deeper, you inevitably confront some major issues that a “buy term and invest the difference” strategy doesn’t address.

For example:

• Most of the term policies advocated by financial “experts” do not increase the death benefit level during the policy term. This means there is no remedy for inflation. (and I believe that inflation is bound to be much higher in the future!).

Bestselling author (Bank on Yourself) Pamela Yellen did the math and she figured it out: a $250,000 20 year term policy, adjusted for 4% inflation, will have lost 56% of its’ value!

Even policies which include an “increasing benefits rider” may not increase at a rate that will overcome the demon of inflation.

• The possibility of future poor health. Some term policies are written so that if your health deteriorates during the policy term, your renewal rates increase. If you don’t renew and try to seek coverage elsewhere, you might discover that you are uninsurable- at ANY price.
• You can invest the difference easily enough, but you can’t “time the market” or accurately predict how much money will be in your account when it comes time to retire. In reality, most people never get this far. The “invest the difference” part just doesn’t happen.

The types of accounts that are best for most people are ones that allow them to always know exactly how much they have at any given time. The vast majority of people simply don’t have the time and training to play the market to their advantage. Even if they do have the right skill set, the stock market can be a very harsh and unforgiving mistress.

With the right kind of cash management account, built around a dividend paying whole life insurance policy, there is no need to worry about timing the ups and downs of the stock market. When you need your money, it is there, available for you to use without strings and without penalties.

“Buy term and invest the difference” advocates usually know nothing about these specially-designed whole life policies since there are only a handful of insurance companies who issue them.

Special dividend-paying whole life policies contain special provisions which are unlike those of traditional whole life. Any advisor who assists their clients with these policies must have thorough training.

Equally important is that advisors must also be willing to forego the usual high commissions on whole life in order to make the plan work for their clients.

Advisors who craft Bank on Yourself or similar plans for their clients to help them finance large purchases or prepare for retirement are passionate about the concept and not the commissions. If it were just a case of them pushing whole life to make more money, there are other kinds of whole life that would be much more lucrative.

The policies used in self-financing are far beyond regular whole life policies in both complexity and purpose.

When evaluating whole life-based plans the financial gurus don’t factor in the tremendous amount of money clients can save on interest and fees.

By financing your large purchases (ex: your car) yourself, you avoid having to pay thousands of dollars in interest and fees.

To be clear, I believe that everyone who can afford to do so should have as much life insurance as possible.

Term IS a great way to get more coverage for less money and if you can get term- you should have it. All life insurance, at its’ core, is term insurance.

However, the primary reason for getting one of the specially-designed whole life policies has little to do with the death benefit.

Instead, the idea behind these policies is to provide you with a savings vehicle that gives you growth, stability, and safety in sharp contrast to the ups and downs of the stock market.

Also, you will be able to pay YOURSELF the interest you used to pay to others when you borrowed from banks or loan companies, enabling your account to grow at a much faster rate than ordinary whole life…

The permanent insurance you also get is just icing on the cake…

If you are looking for a stable, secure, guaranteed way to manage your cash, without risking your wealth on Wall Street, you owe it to yourself to investigate this system.

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Source by Teresa Kuhn