I have read perhaps thousands of articles and books on the topic of financial planning and I am still amazed at how many articles and books mislead so many people about what type of life insurance to buy. Many of the self proclaimed experts tell you that it is better to rent your life insurance (term) instead of owning permanent life insurance (cash value).
Think about it. Do most people feel it's a wise financial move to rent (or lease) their home, car, TV, jewelry, furniture, or almost anything else they are going to have for a long period of time? NO WAY! Most people, including the self proclaimed guru's of the world, will agree that it is much wiser to own these things. Why? Because while renting is initially cheaper, over the long run it's much more expensive.
So, why do some people tell you to rent your life insurance? What makes life insurance so different? The answer is that life insurance isn't any different. And contrary to what some people would have you believe; it is still much wiser to own your life insurance.
Please understand, most of the people who are promoting renting life insurance, are the same people who are trying to get you to invest your money with them. This is not to say that they don't believe what they are promoting or they are purposely misleading you, it just means that everyone has an agenda including people like me who happen to believe in permanent life insurance as a viable option.
Look. The real bottom line is this. What they want you to believe just isn't true. And it is especially not true today. Because with today's new breeds of life insurance products, you have basically the same investment options inside the policies as others are trying to sell you on the outside, only you don't get all of the tax breaks that come with permanent life insurance.
There are also a lot of other things they aren't telling you. Here are just some examples;
- First, for you to come out ahead by renting your insurance and investing the difference assumes that you actually invest the difference. In real life this is seldom the case. Many of us will only save when we are forced to, in vehicles such as permanent life insurance. Don't believe me? Just look at the dismal amount people are currently putting into savings each year, a -1% of income.
- They would also like you to believe that you can average a 12% return or more in the stock market over the next 20 to 30 years. What they aren't telling you is that we just went through the best time in the history of the stock market. Considering the overall history of the market, it would appear that averaging a 6% to 7% return over the next 20 to 30 years would be exceptional.
- They also aren't telling you that a properly structured life insurance contract is one of the very few income tax advantaged products still available to us. Why? Because the cash values inside life insurance build tax deferred and in most cases you can get the money out tax free. That's a huge advantage.
Let me ask you; if you could purchase a properly structured life insurance contract that allowed you to buy the same investments your broker is selling you, but instead of being taxable your money would grow tax deferred; and on top of that you could access your money tax-free when you need it most: assuming you need life insurance anyway to protect your family: then why would you rent your life insurance?
If you are not saving the money you should be for your families future, then maybe permanent cash value life insurance is the plan for you.