Need Life Insurance? Remember “Buy Term and Invest the Difference”

As a Certified Financial Planner professional, I believe that most families with young children need life insurances on Mom and Dad.

The good news is that term life insurance premiums are surprisingly affordable. When shopping for life insurances you would do well to remember the maxim: buy term and invest the difference! 

Although beneficial “forced savings” can result from paying higher premiums on cash value life insurance, you will be better off buying lower-cost term insurance and investing the premium savings in a strategic stock and bond portfolio. It takes self-discipline to save and invest regularly, but it helps to remember cash-value life insurances does not come cheap.

Moreover, as an insurance salesman is not an objective independent investment advisor. I think it is also safe to state that the purported tax advantages of cash-value life insurances are wildly exaggerated by some in the life insurances industry.  Consider the following facts:

1. The tax-rates on long-term capital gains (LTCG) and qualified dividend income (QDI) are 0%, 15% or 20% depending total taxable income. A typical family of four with $100,000 or less in adjusted gross income will pay 0% tax on LTCG and QDI.
2. Investors do not pay taxes on unrealized capital gains. And ultimately you may receive a step-up in basis meaning your tax, on even very large capitals gains of $1 million or more, might well be $0.
3. Purveyors of cash-value life insurance often tout tax-free withdrawals via policy loans. It is important to recognize that stock and bond investors can execute a similar maneuver via a low-cost margin loan.
4. Stock and bond portfolios provide ample opportunity for tax loss harvesting that can sometimes reduce or eliminate taxes, even taxes on earned income.
5. Stock and bond investors can utilize Traditional and Roth IRAs to defer and avoid income tax.
6. The interest on tax-free municipal bonds is just that, tax-free!

If you need help investing, consult an independent fee-only Registered Investment Advisor, not a life insurance agent.  Call Successful Portfolios today at (727) 744-3614 for a free introductory meeting.