Buy Term Invest The Difference
Many people say, “Why bother with cash value life?” , especially Whole Life, when you can use a strategy such as “Buy Term Invest the difference”.
It questions why you should pay, for example, $1,000 a year for Whole Life when you can just pay $200 for Term Insurance for the same coverage? You can invest the difference ($800) into another investment ( such as mutual funds) to get a better potential return. And you can use the investment to pay the higher cost of insurance in the later years, or you can use it for retirement.
There are a lot of believers in this logic, and quite a few of them converted their Whole Life policies to buy Term Life Insurance.
However, in order to have this theory work, 2 conditions must be met.
In either case, if your investments haven’t performed well at the end of the term, and the cost of insurance substantially increases, you may have lost your surplus money , or even worse, you may no longer be able to afford to continue your insurance coverage.
Thus, consider all options to find a suitable solution for your financial foundation.