Why would anyone buy expensive life insurance?
Most people are bored to death by life insurance--it's TMI. If you just save money, you'll never get rich. If you save money through life insurance, you'll create generational wealth.
The standard take on insurance by the masses is usually a lack of trust or fear surrounding insurance. Mostly those with the most fear, have the least need for capital and the most lack of cashflow. Cashflow means extra money after you’ve paid all your bills.
Rightfully so, because most people that don’t have a lot of discretionary income don’t want to pay for something they don’t want to think about. If you have a net-worth to protect, you’ll start thinking about it more. But to get to that point, you have to own assets.
To rent, is to get term insurance.
To buy, is to get permanent insurance.
Goal: To save or not to save.
When you’re young, you certainly don’t think about planning, you’re just thinking about living. You usually aren’t established and don’t have extra cash flow. Insurance is a luxury and it’s most effectively used by people who have plenty of cash flow. Cash flow here is defined as the extra money you have after your living expenses.
Should you rent or buy life insurance?
If you’re young and can’t afford it bypass it. Get to the point where you have money. If you have young kids and want a temporary solution, RENT.
If you’re old, you may want to protect what income/assets you have, and you can only do that by insuring your income/assets. Assuming you have money BUY.
Goal: Afford your lifestyle.
If you are living paycheck to paycheck, you probably can’t afford even term insurance. I hate to say it, but insurance is a luxury. Think “the rich getting richer.” For some people, it makes sense to find a job that offers the bare minimum life insurance. That’s a good start.
Just remember, if you ever make it—-and have cash flow (extra money that you have after you pay for your cost to live), you should consider buying life insurance to preserve any newfound riches.
Most everyone’s goal is to buy a house and not rent forever.
Why?
When you RENT you are contributing money to which you will never get a return.
When you BUY you are building equity. You are contributing money to something that will multiply your money.
When you have money to protect, income to protect, you want to insure your income. Or pay your future self aka as saving. All with the hope to grow your money without risk.
Should you rent or buy life insurance?
Get a job that offers life insurance. RENT it. Term is cheap and temporary. Permanent is more expensive but it forces you to become a saver. If you’re already a saver, it forces your money to grow, quiety and effectively, while still having access to it for emergencies. But if you access it for opportunities, it’s even more effective for your big life picture.
On the other hand, if you have extra money every month. BUY it. Your money that goes in per year grows tax-free and can only go up.
Goal: Build equity.
Should you rent or buy life insurance?
If you RENT it: it’s only temporary and it’s paying for something that doesn’t have a long-term benefit. You can’t build equity.
If you BUY it, it’s expensive. It’s a guaranteed contract. You can build equity. You can borrow on your equity.
Goal: Access to capital.
Equity is great if you want to make your money work for you.
Do you want to let it sit there and stew or do you want to be able to access it to make investments along the way?
Your principal is not market volatile, so if your principal can stay whole, and it can grow in an uninterrupted compound fashion, while you borrow equity, would that be of any benefit to you?
Should you rent or buy life insurance?
Buy it. Get access to your money and have control over it vs. the money you have in your 401K that you have zero control over it because you are sharing the prize and the access to that money with the government. While your 401K is locked up and you don’t have permission to touch it, you can be sure that someone else is benefitting from your money.
Goal: Protect and self-insure.
Self insure is a concept that says, just protection for the best years of your life (these are also the years you are less likely to die) and counts on the fact that you will have made so much money in your 401K that you will have enough money as a legacy to leave behind.
Let’s say you have 2 million in your 401K, if you have no heirs to leave it behind to, you’ll use that as income and it’s only about 60K/yr of income. The goal is to not run out of income, and not to leave a legacy.
You can do this with Term Insurance, it’s cheaper.
You have to die early and within a certain time to get any value from this option.
Should you rent or buy life insurance?
RENT it. Get Term insurance. Your goal instead is to amass millions of dollars to afford self-insuring.
Goal: Leave a legacy.
Want to do it all? Leave a legacy, protect income, and also live your best retirement?
You can do that with permanent insurance. And you can die whenever you will. Particularly if you live a long life, this is a good thing to have. It hedges against the problem of living too long and running out of money.
All this requires that you live a prosperous life with constant cash flow. Make that Goal #1.
Affording this mindset sets the bar for what you need for a lifetime of success.