The most important fact about life insurance that we
can pass along to you is this . . .
Life Insurance Should NEVER Be Purchased For Cash
Accumulation Only.
We must separate life insurance from investments.
Our investment is our ability to produce an income.
Life insurance was designed to protect against the loss
of that investment.
Most financial advisors will tell you to always buy term
life insurance and "invest the difference" in premiums between
term and permanent life insurance.
Insurance is our business and our best professional insurance advice to you is that there is no always answer to buying life insurance. Each person's needs are unique and each individual situation is different.
What we hope to do here is to show you some hypothetical situations which may help you in making a better informed decision in regard to your own personal life insurance program.
Let's assume we are buying a $250,000 life insurance policy on a Male-Age 35, who doesn't use tobacco products and is in excellent health.
The life insurance agent shows two options:
| Plan of Insurance * |
Insurance
Face Amount |
Monthly Premium
(Bank Draft) |
| 20 Yr Level Term |
$ 250,000 |
$ 23.31 |
| Guaranteed Adv UL |
$ 250,000 |
$ 127.46 |
The first thing that catches our attention is that the difference in life insurance premium is $ 104.15 per month. So, let's assume that the applicant purchases the 20 Yr Level Term Life Insurance Policy and invests the difference in premium, with the goal of totally replacing the need for life insurance in 20 years.
Investment Example **
Starting with $0 and depositing $ 104 monthly over 20 years (at a rate of return 27.63%, compounded monthly and taxed at a marginal rate of 28%):
| Initial Balance |
0 |
| Total Deposits |
$ 24,960 |
| Total Interest Earned |
$ 312,628 |
| Total Taxes Paid |
$ 87,536 |
| Total Saved |
$ 250,052 |
So, if the person used in this example could find an investment that would guarantee a 27.63% return on his investment, he could eliminate the need for the $ 250,000 life insurance policy in 20 years.
A taxable investment could have cost approximately $ 87,500 in income taxes.
Difference In Life Insurance Premium
| Premiums Paid Over 20 Yrs. |
20 Yr
Level Term |
|
Difference |
| |
$ 5,594 |
$ 30,590 |
$ 24,996 |
In this example, the 20 Yr Level Term Life Insurance Policy will terminate in 20 years (the insured is now age 55). To renew the term policy will require a premium many times the amount that was paid during the first 20 years. This person also may have the option to purchase a new life insurance policy, however, the premium will be based on his current age (55) and he must meet all eligibility requirements of the insurance company in regard to height, weight, medical condition, etc.
Had this person purchased the permanent life insurance policy, he obviously would have paid more insurance premium, but his life insurance policy would not be disturbed in any way after 20 years.
He would continue to pay the same premium and his life insurance policy would remain in effect for the rest of his life, as long as all the terms and conditions of the insurance policy were met.
| *Both plans of insurance shown in this hypothetical example are underwritten by MetLife Investors USA. The premium for the 20 Yr Level Term policy will remain level for the first 20 years. This policy is renewable to age 95, but after the first 20 years, when renewed the policy will become an annually renewal term policy, with premiums increasing significantly each year. The Guaranteed Advantage UL product is a universal life insurance policy with premiums designed to keep the policy in force until age 100, providing all premium payments are made and there are no cash surrenders or withdrawals. |
| ** This hypothetical investment example was calculated using the Savings Calculator found at MSNMoney.com and we in no way attest to its accuracy. This example is for informational purposes only. |
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