Many people struggle over which type of life insurance makes the most sense for their situation…term insurance or permanent insurance. The difference between the two comes down to cost. Some experts will say why pay for an expensive permanent policy, when you could buy term (which is way more affordable) and invest those savings into a mutual fund, annuity, stocks, bonds or some other investment vehicle. The idea is that investing that “difference” (premium savings) would replace or exceed the cash value accumulation of permanent insurance.
If you are deciding if this strategy is right for you, you need to seriously consider what best suits YOUR personal objectives and circumstances. Think about this:
- You may not have the discipline to actually invest the difference.
- If you need to renew or reapply for your term policy, the cost may become prohibitive as you get older of if you develop health problems.
- If health problems occur, you could become uninsurable and not even be able to purchase term insurance when it comes time to renew.
- You need the discipline not only to invest the difference, but also to invest early while the difference between the amount of your term insurance premium and the amount of the premium for your permanent insurance is the greatest. You will need to make up for the dramatic increase in the cost of term insurance at later ages.
- The investment you choose may not perform as you hoped.
Please make sure to carefully weigh knowledge about your habits and self-discipline along with the benefits, risks, product features, and any current or future charges associated with any insurance and/or investment product before deciding how to address your particular needs. When in doubt, schedule some time with a professional because they can help you sort through all your options and ultimately make the decision that will be in your best interest.