Life Insurance Term Life Insurance whole Life Insurance Universal Life Insurance Mutual Funds

Life insurance is something everyone needs, or do they?

There are basically 3 ways to insure yourself.

1) Whole Life Policy. Whole Life is called by different names including Universal Life. These are policies that you pay a high premium and part of the premium is invested by the insurance company. You accumulate a cash value with this policy. One of these policies that I see advertised on TV is the Gerber Life policy.  They try to sell you on the point that the policy accumulates a cash value, however, what they don’t tell you is that it takes 2-3 years before you even begin accumulating a cash value due to the fact that you have to pay expenses for the investment. You are also only earning about 3% interest per year. These are horrible policies and you should avoid them.

2) Term Life Policy. These are great policies. You buy a policy for a certain “term”, usually 15, 20 or 30 years. They are very inexpensive, for example, according to Zander Insurance, a 30 year old male, non smoker, can get a 30 year $250,000 policy for $225 PER YEAR. That is less than $20 per month.For $225 per year, you would be lucky to get a $10,000 whole life policy. The catch in buying Term Life is that at the end of the term, you should have your financial life in order.  The reason for this is that it becomes more difficult to find Term Insurance, the older you get and it will eventually come to a point where you can not buy Term Insurance. The best I could do is find a 20 year term for a 70 year old.  

3) Be Self Insured. How do you do this?  If you are completely debt free and have $500,000 or more invested, who needs life insurance?  You could pay $15,000-$20,000 to bury your spouse and still have $480,000 or more left. You are probably saying this can not be done, but let’s look at it a minute. Let’s say you are 30 years old and buy a 30 year Term Life Insurance policy.

After 30 years, you would have ample time to pay off any credit card debt, student loans or any other kind of debt including a mortgage. In fact if you took out 15 year mortgages, you would have time to pay off 2 mortgages.  You are also investing 10% of your gross income into an IRA, 401k or even just Mutual Funds that are averaging 9.65% growth per year, after 30 years, someone making $25,000 per year with no raises would have about $393,000.  9.65% growth is a conservative estimate. It is quite easy to find Mutual Funds that average 10-12% growth.  So it is possible to be self insured, however, I would recommend keeping a Term Life Policy as long as possible.