01/19/2021
Buy term insurance and invest the difference” is a strategy that grew in popularity because it will provide the typical American stronger returns, lower fees, and better coverage than a typical whole life or universal life insurance product. The process is simple enough. A person buys a term life insurance policy and pays a monthly premium. They then save an amount equivalent to the premium they would have paid with whole life insurance in a brokerage account that is intelligently invested.
So how much more money could I have by investing the Scenario: Whole life
A 40-year-old male can expect to pay $347/month for a $250,000 whole life insurance policy. After 20 years, the policy will have a guaranteed value of $70,018, and its likely value would grow to $105,721 due to the performance of the investments held by the life insurance policy.
This increased value would boost the death benefit, the amount of money paid out to your family at the time of your death, to $326,352.
Scenario: Term life and investing the difference
In a 20-year- level-term plan, that same man could get the same $250,000 in insurance coverage for $23 a month. That’s $324 a month less than the whole life insurance product.
At a conservative rate of return of just 6% to 10% per year, the buy term and invest the difference approach will produce a brokerage account worth about $150,322 to $248,327. That’s money accessible to you while you are still alive, or to your beneficiaries, if you do pass away.
The difference in outcomes is enough to give pause to even the most conservative of investors.
