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Old 19th March 2008, 07:06 PM   #9
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Join Date: Nov 2007
Location: Long Island, NY
Posts: 89

Originally Posted by dschachter View Post
If you put the premium, say $500, into a savings account and die that year your heirs get $500 plus 4% interest. If you'd used that money to outchase a $500,000 term life policy they get 1,000 times more money.

It's not a bet, it's protecting your loved ones. You're insuring your lost income so your family can pay the bill while figuring out how they're going to pay the bills in the distant future.

You're basically giving them 5 years income (that's the rule of thumb when deciding how much to buy) so your wife or husband can get trained and go to work.

One more thing, buy term life not Whole life or universal life. The rate or return on your money on those policies is VERY low.
Great points about protecting yourself and your family BEFORE you start to save and accumulate wealth through investments (or put the money in a bank).

The rule of thumb by the way is 10 times their income. But, to be honest I've never used that rule of thumb. Every case is different. One has to look at their entire situation to determine the amount of income that needs to be replaced.... For example if a family has young children then college funding has to be considered. If they don't then you don't need to protect that asset.

As for the term vs. permanent argument, again a blanket statement that the return on your money is VERY low isn't correct. With a variable universal life insurance policy, your cash value is invested in mutual funds (or a fixed rate of return). How you allocate is a function of your risk tolerance, goals, and objectives. The more risk you can accept, they greater return you're expecting.

Those that choose a whole life policy like the idea of a steady return (just take a look at how the markets have performed the last few months to understand why some people might favor that), and also the idea that after a certain number of years the policy is "paid up" and the policyholder doesn't have to pay premiums for the rest of their life.

Last edited by LCGoldman; 19th March 2008 at 07:09 PM.
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