It used to be said that “All Roads Lead to Rome.” And at one time, that statement was probably true. But that was centuries ago. Belief in such a statement today could land you in trouble.
The same is true about whole life insurance. It used to be said that whole life insurance cost more than term insurance. In fact, one specific insurance company made billions and billions of dollars based on this marketing scheme which stated, “Buy Term, and Invest the Difference.” Today there are some marketing and self-aggrandized financial experts who still claim this statement to be true.[i] Flagrantly, they are making millions and millions of dollars off people who still believe them.
But believing this simplified statement about life insurance could land you in a lot of financial trouble.
Because whole life is more expensive initially than term insurance, both term and whole life insurance products should be used in combination when you are considering covering your liabilities and ensuring that your loved ones are protected in the event of your death. But over time the need for your term insurance will dissipate as your participating whole life insurance face value increases. This will occur naturally over time in a participating whole life policy due to the guaranteed internal rate of return and the dividends. So, when you need access to money along your journey in life, or simply need to reduce the down draw on the principle in your retirement account(s) once you retire, your surrender value in your participating whole life insurance will be there for you. You can count on it. If you do it right, you can still earn the internal rate of return and dividends the insurance company provides while using that money, tax free and guaranteed!
Today all roads don’t lead to Rome. And that means you absolutely cannot count on marketing schemes or financial experts who advocate “Buy Term, and Invest the Difference” because your retirement accounts cannot produce everything you will need…neither for your retirement nor for your cash flow needs along the way.