Why did buying term life insurance and investing the difference not work for many American Consumers over the last few decades?

By J. Jason Astwood, LUTCF, FSCP

Introduction

Life insurance is a product that many people use, but not everyone understands. In fact, there are several misconceptions about life insurance that can lead to bad decisions and poor results. One of these myths is that term life insurance and investing the difference will provide guaranteed long-term savings for retirement. This myth assumes three things:

The first assumption is that term and whole life insurance cost the same.

Many people think that term and whole life insurance cost the same. They don’t.

Term life insurance tends to be much cheaper than whole life or index universal life coverage because term policies do not have a cash value component and may expire without paying any benefits. Whole life and index universal life insurance is more expensive because it also includes an investment or dividend component that grows over time, which increases its price tag to account for the cost of future premiums as well as expected growth in that premium.

The second assumption is that people will use their savings in a disciplined way.

The second assumption is that people will use their savings in a disciplined way.

Here's the problem: many people have trouble with self-control, whether it's resisting temptation to withdraw money early or using their savings for other things. The same study found that almost half of customers in the term life insurance company's program who invested the difference into Vanguard managed mutual funds withdrew money before age 70, often due to financial hardships such as divorce or unemployment. And once they started withdrawing from their portfolios, it was hard for them to stop. In fact, just 1% of investors in their 60s who were allowed unlimited access to their retirement accounts were able to stop taking money out entirely by age 70; another 6% stopped taking at least a little bit but still took out more than they put back in during each year between ages 65 and 69.[2]

Quality of investments is another factor.

As an investor, it is important to remember that investments are made with an eye on the future. You should be making your investment decisions with a long-term goal in mind, as well as the risk and tax implications involved. When you buy term life insurance, this is what you’re doing: buying protection for the future for a limited amount of time. The general idea is that you can invest this difference in many different ways like retirement plans or other investments but whatever method you choose, make sure that it is something that will help you meet your objectives; unfortunately only 90% of investors who begin their journey toward becoming investors eventually run into the statistic that 90% of traders lose money when trading the stock market. According to this statistic, over time, 80% of people lose, 10% break even, and 10% continually make money.  

Buying term life insurance is not always the best option for everyone.

Buying term life insurance is not always the best option for everyone.

Term life insurance can be expensive and does not offer the same protection as whole life insurance. It also does not offer any savings or investment options, which makes it difficult to build wealth over time.

Conclusion

Term life insurance is a good option for many people. It can provide the financial protection you need without the high cost and long-term commitment of whole life insurance. But if you have your finances in order and are interested in investing, we recommend consulting with a financial planner before making any decisions about how to invest your savings. For a free life term life insurance quote Call now (385) 425-5410, or text for more information- click here: https://agents.ethoslife.com/invite/a1935