Term – or permanent – that is the (insurance) question. “Experts” like Dave Ramsey say we should only own term life insurance. Build enough wealth, he says, and we won’t need life insurance after the kids are grown and gone.
Let’s start here. If we’re financially responsible, we must have life insurance. It’s the only way we can complete the job of securing our family’s financial future if we’re not here to do it ourselves.
According to industry statistics, more than 95% of term life insurance policies never result in a death claim payout – meaning the premium expense is money down the drain.
Permanent insurance provides the death benefit we need, and builds cash. True – it’s more expensive – but only because the extra cash goes into a cash accumulation account that we own – it’s our money. We’d have to set that same money aside for investment anyway, in order to fulfill Ramsey’s qualifier: build enough wealth so we don’t need life insurance in our later years.
How well permanent insurance builds personal wealth is the real question.
Permanent insurance is like a pile of wood and nails. It can be fashioned into a beautiful home – or a rickety outhouse – and only a true professional knows how to construct them for the outcome we want.
Three features however, make the cash-accumulation capacity of a permanent insurance plan very intriguing.
- The cash build-up is tax-deferred, like a 401k or IRA
- Cash can be taken out of the policy tax-free – like a Roth IRA (but without the early withdrawal penalty)
- Most permanent insurance builds cash without exposure to market risk – so you’ll never lose money when the stock market burps.
If we really don’t need the death benefit in our later years, the cash inside the policy will pay the premiums so we can stop writing checks; and the death benefit payout is like our estate getting a refund for our lifetime insurance costs – pretty neat!
Ultimately, the permanent or term insurance is a question you’ll have to answer after a thorough conversation with the right advisor. They’re out there – and you owe it to yourself and your family to find one.