Buy Term Life, Invest The Difference

Many research indicates to “Buy term and invest the difference” which is what I plan on doing. But I’m still curious, if the wiser choice is to buy term, then:

Who actually buys whole life? Why?


Reply from someone, very interesting.

A rule of thumb:

When you select TERM insurance, you are RENTING the coverage.

When select a whole life policy, your are BUYING the coverage.

You have to decide what type of coverage is right for you.

Keep in mind that TERM rates increase annually or in increments (5 year, 10 year, 20 year, 30 year) and at some point, the rates will be higher than you will want to pay…so, you go without it.

Most folks get the idea of “I’ll buy term and invest the difference” yet they fail to “invest the difference” and as they get older, with the increase in the term insurance, they have LESS to invest.

With whole life insurance, the payments will stay the same for the entire period. Not a bad deal for youth as it keeps the cost of life insurance low, and protects their “insurability” in the future.

Good luck and I hope this helps.

Click here for a case study using my own age and expectation, comparing Term and Investment-Link Product.

There is no one fixed rule for everyone, else all financial advisors and consultant will be redundant.

99 vs 1

A working person faces the following risks:

a) premature death

b) serious illness and disability

c) unemployment

d) insufficient income during retirement

The chance of (a) and (b) occurring during the working life is quite low, perhaps less than 1%.
By getting bad advice from insurance agents, they spend too much of their savings to insure against these risk.

Most people (i.e. 99%) are likely to face the risk of (c) and (d). This risk can be best managed through personal savings.

The savings should be invested to earn a good rate of return and can be withdrawn without penalty, e.g. through a low cost investment fund. The personal savings can be used to cover cash flow needs during a temporary period of unemployment, without the need to depend on borrowings which incur a high interest burden. If the savings are invested prudently, they will provide an adequate amount for retirement.

As an alternative, they can also buy a personal accident insurance for $100,000 at a premium of about $175 a year. Most of the risk of premature death is caused by accident, right?

Summary:
The key priority is to have adequate savings (say 15% to 20% of your earnings, in addition to EPF) and keep it for an adequate rate of return (low risk fund). Spend not more than 5% of your savings on term or personal accident insurance.