Some say that TERM LIFE INSURANCE is the best deal.
Some say they prefer a single pay life with a bunch of cash stacked up into it on day #1
Some say a twenty-pay life is good.
Some say a life paid up at 65 because it mirrors the working life, more or less, of a person.
This may come as a surprise: they are all the same once you get out to age 100 or so.
The actuaries, who are the rate makers of the life insurance industry, tell us that all life insurance, short pay, long pay, one-pay, it is all “actuarially equivalent” at age 100 or 110 or 120, depending on which actuarial table you are using.
- NOTE: the latest CSO or “Commissioners Standard Ordinary” table (that’s a Hollywood name if I ever heard one, eh?) uses a lifetime of 120 years.
And I hear this all the time: “If I just keep life insurance for my working life, then I’m way ahead by not paying all those premiums” But that is not entirely accurate.
Here is the rub: all these policies are equivalent if you keep them in effect until mortality, meaning the mortality of the LAST person standing – or 120 years.
So, in order for the tables for all the policies to be actuarially equivalent, you would have to hold onto and pay for your Term life Policy long after you got sick and tired of paying those increased premiums. That is right: A term policy is equivalent to a whole life policy IF and only IF you keep it until you “graduate” (die).
And if you buy a term policy and only intend to keep it for a certain portion of your life, and not your “whole” life, then you are not insuring yourself, you’re GAMBLING. In fact, you are making an extraordinarily poor bet, because you are betting against “the house” this case, the life insurance company. You are betting you are going to die within the term of years set in your term policy – and the life insurance company is betting you’re going to live, in fact, outlive the guarantee period set in that policy.
Why do you think term rates are so attractive? They are not cheap, they are appropriate to the age and risk.
In fact, 98% of all term policies expire before the insured person does.
Let us say you are 30 years old and pay $50.00 per month for a $ 1.0 million 10-year term policy.
In ten years, you probably have a 99.9% chance of being alive. You have paid the insurance company $6,000,
And they have not paid you a dime. Now you are out the $ 6,000, plus you’re also out the earnings on that money. (we in the financial industry call that “opportunity cost”). Plus, your family is also out the $ 1.0 million, because you are alive, and they lost out on that life insurance windfall. So, who really saved money by paying those “cheap” term premiums? Not you.
You can extend this model out to age 120, when your premiums will literally be about equal to the face amount of the life insurance – EVERY YEAR – and you will see what I am getting at. Do not take my word for it, you can look it up.
There are no deals in the life insurance industry. It only appears that way, to hear some talk about it.
I would like to quote Paul Harvey, and say, “And now you know the REST of the story”. But truly, we have only begun to scratch the surface. There is so much more to talk about, if you want to know how life insurance really benefits the living, creates legacy, creates passive income in retirement, protects families, business partners, protects against creditors, legally avoids most taxes… and more.
Talk to a seasoned, credentialed life insurance advisor, and get the whole story. Yup. I am one of those.