Life Insurance Term

It may come as a surprise to you, but I agree that the advice to “buy term and invest the difference” is a great prescription for a bright financial future.  I also think that “do unto others as you would have them do unto you” is a great prescription for a happy society.  But the real world is very different.  You don’t have to look far to find situations where human pride and selfishness has led to the trampling of the rights – and happiness – of other people.  And you don’t have to look far to find examples of why “buy term and invest the difference” rarely works for your finances. In Dave Ramsey’s article, he uses the example of a 30 year-old man who has $100 per month to spend of life insurance .  According to Ramsey, the cost of a whole life insurance policy from each of the top five life insurers would cost about $100 per month to purchase $125,000 in coverage.  A comparable term life insurance  policy, Ramsey asserts, would cost about $7 per month (Actually, I checked top 100 life insurance companies and even the best possible health class it is at least $15 per month) Ramsey suggests that if this hypothetical person bought the term life policy, and invested the difference – $93 per month – at the end of 20 years, he’d have more money than if he’d bought the whole life policy.  Is that necessarily the case? Well, if you’d been investing that money faithfully, starting in 1987 and continuing all the way to 2007, you’d have just reached the end of your twenty years and watch the value of your investments today! I don’t think there’s anyone out there who is willing to state that investing your money is a safe way to guarantee its continued growth.  But let’s just say that you did average 10% annually on your investments, and there were no market corrections – all of your stocks and bonds and mutual funds performed exactly as you’d have liked them to.  Then, you have to account for your expenses – every transaction costs money, and just for managing your money, investment houses charge a fee.  So, you have to take that part out of your return

Link:
The Truth About Dave Ramsey – My Response to Dave Ramsey’s Article “The Truth About Life Insurance,” Part 3

Written by Admin on August 5, 2010 under Featured, Insurance Basics, Life Insurance.

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