The Truth About Life Insurance
If what you KNEW to be true about insurance was not true, when would you want to know?
Most consumers are under the impression that term insurance, like Term 10 or Term 20, costs significantly less than permanent insurance. But that is like saying renting a house costs less that owing your home. Sure, your monthly out of pocket may be higher renting versus owing, but owing is also an investment.
IF YOU UNDERSTAND THE BENEFITS OF OWNING YOUR HOME VERSUS RENTING IT, WHY ARE YOU STILL RENTING YOUR INSURANCE?
When I explain to clients the real cost of term insurance they are often dismayed. Let’s take a look at an example.
THE REAL COST OF TERM INSURANCE
Let’s say you own Term 20 insurance and pay $1,000 a year for your coverage. The mistake is in believing the maximum loss is only 20 years x $1,000 or $20,000. The truth is that if you knew you were going to live 21 years you would never have purchased that insurance. You would have invested your money each and every year instead. If your investment earned 8% over the 20 years it would grow to $45,761. This is what is known as lost opportunity cost. It’s not just the loss of the money, but what it would have grown to.
In fact it gets worse. That $45,761 could have provided you with a 20 year income of $4,661 in retirement … increasing the economic loss to $93,219. YOU CAN DROP THE COST OF THE TERM … BUT YOU CAN’T STOP THE LOSS. Term insurance is one of the most common ways in which consumers are losing money unknowingly and unnecessarily.
So why would you make a financial decision that if you get what you want (you live 20+ years) you lose financially? What type of insurance is best for you? The type you pay into with little hope or desire for a return? Or the type you pay into with a guaranteed tax free return in retirement and that pays out an additional guaranteed death benefit when your life is over?
What kind of insurance do you want to own? The kind that expires before your life expectancy or the type that remains in force so there is a guaranteed payout?
Permanent insurance is like owning your home. You can pay for a limited period. You build equity. It is an asset. The investment in the policy grows tax sheltered. And permanent insurance, just like a home, can be turned into a tax free income in retirement.
So now that you know the truth about insurance, what are you going to do about it?