Some insurance and financial service professionals swear
by the idea of "Buy Term Life Insurance and Invest the Difference." While I
think the strategy can be effective, each individual and family should
evaluate their own situation.
In order for "Buy Term Insurance and Invest the
Difference" to work, an individual must have a disciplined retirement and
savings program and enough time to accomplish his or her own financial goals.
Also, an individual probably should not set the expected rate of return over 8
to 10%, which is inline with the historic market return. The big question will
be how much term life insurance is needed?
If you are correct on your financial assumptions and
qualify for your life insurance needs, "Buy Term Insurance and Invest the
Difference" might be the answer. Unfortunately, any strategy is measured by the
end results. Therefore you must monitor your financial progress on at least a
quarterly basis, in order to make sure you are on the right financial track.
In other cases, "Buy Term Insurance and Invest the
Difference" does not work. The strategy assumes that you will have enough money
to cover the rest of your financial obligations after retirement. Generally, it
does not take in consideration the possibility of lawsuits, additional housing
and others expenses, or expensive illness or injury that could wipe out your
finances, once the term life insurance expires. It is not inconceivable that
this could occur, even if you had some permanent form of life insurance. In
these cases, where you incur additional debts in retirement, you might need an
extra $100,000 to $200,000 of life insurance. However, if you are found
uninsurable long after your term life insurance expires, you might only qualify
for a graded life insurance policy. When you purchase a graded life insurance
policy, you usually have to pay premiums and live an additional two years, while
the policy is in force, in order to
receive the policy's full death benefit. This type of insurance is often
expensive for a $10,000 face value.
Each individual and family should evaluate what life insurance
program will work for them. Before retirement, you shoulder consider speaking to
your insurance agent or tax advisor concerning Long Term Care Insurance.
Remember "Buy Term Insurance and Invest the Difference" can work for you only if
your financial assumptions are correct and you have enough life insurance to
cover your debt obligations.
Disclaimer: The information in this article should
be construed to be insurance advice. Always consult a financial or insurance professional
or tax accountant
to determine what coverage is right for you.
