March 21, 2019

An insurance agent has suggested that I buy term instead of whole life. Does it make sense to buy term and invest the difference?

"Buy term and invest the difference" has been a popular sales slogan for term life. The pitch compares term, the least expensive form of life insurance, with other kinds of life insurance.

Example:

$100,000 death benefit at age 35

Annual whole life premium: $1,800

Annual renewable term premium: $250

Difference: $1,550

What are your choices?

Buy whole life. The “difference” is used to keep your premiums lower than the actual cost of insurance as you get older.

Buy term. You keep the difference.

In addition, make sure you consider the following:

  • As you get older your term premiums will increase to keep up with the cost of insurance;
  • If you invested the difference, you could use your investment to pay the higher cost of insurance;
  • If you spent the difference you will have to dip into other savings to pay higher premiums; and
  • If your health deteriorates you may not be able to buy a new policy