Buy term and invest the difference is a very popular piece of financial  advice, but is it really a good idea? Here are a few things you should  consider before practicing this strategy.

#1 It sounds good now, but how about later when it really matters?

Over half of all new permanent universal life policies are sold to people over age 65. Why? Well it depends on the situation, but there are some very compelling reasons to have life insurance in force for your  entire life. One of the most frequent comments from older clients, even the very wealthy, is something to the effect of “I wish I’d done this when I was younger”.

#2 What do the pros say?

I’m not sure how “buy term and invest the difference” got so popular: I don’t know many financial advisors that recommends this as a long  term strategy to clients, and we work with a lot of them . And in discussing the issue with them, not one of them knew any advisors that advocated this idea either. You don’t often hear these advisors publically speaking out against it though, because they can’t. There are heavy restrictions on the ways  advisors communicate financial advice. If an individual follows an  advisors ideas and something goes wrong, that advisor can be sued and  lose a license and/or job, and every clients situation is different. As a result, very few advisors  will publicly give out information, because a good advisor instead deals with his or her client one on one. So if you hear financial ideas on the radio or web, from TV or Radio personalities, it’s majority of the time simply an opinion by someone who is not legally licensed to provide financial advice.   In other words, not an expert. The person may have some great ideas, but they are not liable for anything they say. An advisor who is regulated by investment and insurance regulatory bodies is on the hook and can be sued for every piece of advice he or she gives.

#3 It has nothing to do with commissions

In fact, many advisors would rather see their clients money go to investments and see them grow over time, at least from a commission standpoint. In the long run investments pay  significantly more in commissions/fees than life insurance. And term insurance most of the time pays higher commission percentages.

#4 You don’t know when you’ll die

What if you can’t save enough money before your term policy expires?  Once the initial term expires, prices can skyrocket and there is no  guarantee you will qualify for a new policy. Even if you do, the price  is likely to be around seven times more expensive than the first policy. If  you continue to pay your original policy, it will take about 5 years for the price to increase 10 fold. Another 10 years later and it will have  increased by another factor of 10. Can you afford that?

With life insurance, term coverage costs less than permanent coverage. Term life is a gamble because death is unlikely during the period of coverage and because the steep premium increases at renewal encourage you to cancel coverage.

With permanent insurance, the tax-free death benefit will be paid as  long as the coverage remains in force for life. Naturally, this stronger promise costs more. As long as you keep paying the premiums, the  insurance company must provide coverage even if your health  deteriorates.

Your chances of dying increase as you get older. Suppose you bought term coverage with rates that increased each year as you age. Do you see the problem? The insurance becomes increasingly expensive as life  expectancy approaches. So you can’t afford insurance when it’s most  likely to pay out. What good is that?

The point here is simple: Every person’s situation is different, and Term Insurance can be a very good vehicle to use to your overall financial plan, but so too can Permanent Insurance when designed properly.

Work with an independent advisor who understands both types of insurance, and is not limited to the products they can offer, but instead will work with you to determine the right plan & the lowest price to you & your family’s needs.

Contact Mintco Financial Team of Independent Advisors for more questions or a free quote:

Mintco Financial
18948 N. Dale Mabry suite #101
Tampa Florida 33548

Phone: 813-964-7100

Get a free quote here!

Source: Blog