Buy Term and Invest the Difference vs. Buy Whole and Invest the Rest.
Moshe Grunhut
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Buy term and invest the difference.
Does this sound controversial to you?
It sure is, in my industry.
For those who aren’t familiar, this is a phrase used by people who are against whole life insurance.
Don’t spend money on a whole life insurance policy, they say.
Spend less on a term policy, and invest the savings.
With those investments, you should be able to make higher returns.
(Whole life policies are permanent life insurance policies, which also have an "investment" aspect, in the form of cash value growth, which the policyowner can access tax-free)
I have 3 problems with this.
I won’t get into the fact that life insurance is not an investment.
It’s a financial tool.
Comparing it to the stock market is ludicrous.
Also, let me preface by saying that I sell very little whole life.
I don’t believe it’s for everyone.
Especially people saving up for a specific goal, like buying a home.
These are my problems with the concept:
1. Many people don’t invest the difference.
They buy term and SPEND the difference.
Should they spend it?
No.
But it’s reality.
Having a life insurance policy, with a savings aspect, can be good for them.
2. Not everyone is looking for the highest returns.
Some people want to know what they’re getting.
They want something that doesn’t fluctuate.
That they know will be there when they need it.
There’s nothing wrong with that.
Don’t shame people into wanting higher returns, in exchange for their peace of mind.
3. Whole life, and investing, are not mutually exclusive.
A person can put some money into a whole life policy, and still invest.
Having a secure financial base, like a cash-value life insurance policy, can enable someone to be more risky with the rest of their money.
So don’t buy term and invest the difference.
Buy whole, and invest the rest.
Rant over.
Thoughts?
#lifeinsurance#showyourlove#NewYorkLife
Sales Associate at Talbots
3 年I've seen some tremendous loans taken out against WL policies. Then there's the Life polices of $10,000 from 1963 that are still in force. It's a wild and wacky world. If I were to get any life insurance, it'd be Term because it's less expensive, in general. It's the auto insurance of the life insurance world.
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3 年Wow! Your first article makes mine look like cat food Moshe Grunhut. Really well done. How long did it take you if you don't mind me asking?
CFO at Dialyze Direct | Excel enthusiast
3 年I like the format of articles. And it’s well written. So good job. I have been looking for rebuttal to “buy term invest the difference” mainly because I never could understand why ever to buy whole life. But I figured that since it is a product it needs to make sense for someone. That said if the reasons you mentioned in the article are the top 3 reasons to ever buy whole then I really don’t understand the product. It’s only for ppl that want a forced savings plan that has a worse return than the S&P 500 over the last 100 years??