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'Buy Term Insurance and Invest the Difference' Is Outdated Advice

'Buy Term Insurance and Invest the Difference' Is Outdated Advice
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By    |   Wednesday, 16 May 2018 08:31 AM

A.L Williams revolutionized the insurance industry in 1977 when he started showing clients that the best way to save was get a term life insurance policy, and invest the difference.

This was to beat out the slower gains of a whole life policy which also is a way to have an income stream. He exploded the market, was one of the first to have weekly private television broadcast to communicate to over 100,000 agents and created a family vibe. They eventually became Primerica in 1991. I respect A.L Williams as a businessman especially because he is an innovator. However, like all innovations you must adapt.

The ideology behind using the strategy is that a term policy is much cheaper than a permanent insurance policy, it’s like you are renting a death benefit from a company versus owning the insurance policy. You get a specific term such as 10, 15, 30 etc. if you pass away within that term period your heirs will get a death benefit.

Let’s use a hypothetical example of someone who uses the term and invest the difference strategy.

If you were to have a permanent life insurance policy that you were spending $300 a month, and have a 401k that you are contributing $1000 a month. Let’s assume that you get an average of a 7% return and you will retire at 65. An agent who sells this concept will have you get a 30 year term policy which should be about $50 a month for the same coverage, and now can invest an additional $250 a month in the market. Based on these numbers you would have $1,015,147 before taxes, and has to be adjusted for inflation which should only have the buying power of $567,880 in tomorrow’s money with an unknown tax rate.

When A.L Williams was first selling this process in 1977, life expectancy for men was 69.5 and females was 77.2, currently the life expectancy in men 76.4 and females was 81.2. On a blended rate, we are living on average 5 entire years longer than when the concept was first originated. The concept is going to have to endure going through record life expectancy, going thru inflation, stock market volatility. Then you are expected to still have enough money to have a funeral, and leave behind money for your heirs? Maybe when we only were living 4-7 years after we retire. We have a very realistic chance of living 30 years after we stop working.

You also have to account for catastrophic illness, many of the inexpensive term insurance policies don’t have provisions for Cancer, Stroke, or Heart Attack that can provide cash if facing any of these dreaded situations.

Then you also have to think of your heirs, with this strategy it is not realistic that you will have enough money to pay rising expenses for the rest of your life if you live too long, meaning longer than a life expectancy. As we advance with medicine we are going to keep living longer, if you are in your 40s it is very realistic you will live until your late 90s or later.

As a former professional football player I always think of football being four quarters, society seems to have a great strategy for the first three quarters as you may be aware if you watch football, games are won or lost in the fourth quarter.

Mario Henry, a former National Football League player, is a financial services professional with 18 years of experience in the industry and author of "How to Hire Your House," an innovative guide on how to create a tax-free pension and sustain sufficient income through retirement. Mario also is a licensed insurance broker and a national motivational speaker. He was a wide receiver with the NFL’s New England Patriots and a scholarship football player at Rutgers University.

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MarioHenry
As a former professional football player I always think of football being 4 quarters, society seems to have a great strategy for the first 3 quarters as you may be aware if you watch football, games are won or lost in the 4th quarter.
buy, term, invest, life, insurance
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2018-31-16
Wednesday, 16 May 2018 08:31 AM
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