Whole of life insurance quote - Whole Life Insurance as an Investment

Whole of life insurance quote

What if a single financial decision you make as a young adult could haunt you for the rest of your life preventing you from retiring early becoming a millionaire or ever reaching financial independence hello and welcome to practical personal finance my name is andrew scheer and this is where i give you the information you need to understand and succeed with money there's a famous scene in star wars where luke leia han and chewie escape a firefight with Stormtroopers by sliding down a trash chute what seems like a great idea later reveals

itself to be a trap as the walls of the trash compactor begin to close in on them today i'm going to tell you about a financial trash chute that millions of people just like you and i fall into every single year and while you might slide down that trash chute with the best of intentions the walls of the trash compactor will eventually begin to close in crushing your financial future if you want to avoid that trash compactor then give this video a thumbs up and if you're new here hit that subscribe button too who knows you might just learn a thing or two about money 

if you haven't already guessed the trash chute i'm talking about has to do with permanent life insurance but before we get into how the decision to buy this specific type of life insurance can haunt you forever i want to back up and talk about how life insurance works life insurance just like car insurance or health insurance is designed to protect against financial risk but unlike these other types of insurance you're not the one getting paid if the insurance gets used since well 

you're dead when you sign up you pay a set amount of money every month called an insurance premium if you die while your policy is active the insurance company pays someone you choose call the beneficiary a predetermined sum of money called a death benefit life insurance is supposed to help your loved ones financially by replacing your income if you pass away unexpectedly when life insurance is done right your spouse children and anyone else who depends on your paycheck will be able to maintain their current lifestyle forever even though you're not around anymore to chip in financially all you need to do is make sure you 

purchase a large enough life insurance policy then if you die all your beneficiary needs to do is invest the death benefit and spend only the investment gains without ever touching the principle if you're interested in learning what amount of life insurance is right for you i made another video on that very topic and i'll leave a link in the description not everyone needs life insurance maybe you're a recent college grad you're single and you don't have any kids would anyone be in a tough position financially if you died probably not what about if you just turned 60 years old your home is paid off you live with your spouse all of your children are adults and you've got 2 million dollars sitting in a retirement account are your 

loved ones going to be all right financially if you die in most cases yes in general you probably need life insurance between your wedding day and the day of your youngest child's college graduation a great financial goal is to have enough saved up that life insurance is no longer a necessity that way when it becomes too expensive you can just drop it life insurance is an important part of your financial foundation it's easier to understand than car insurance or health insurance and it plays a key role in protecting the people who mean the most to you if the unspeakable happens but here's the thing millions of Americans get life insurance wrong every single year here's how they fall into what I call the life insurance trap 

life insurance comes in two flavors term life insurance and permanent life insurance both work exactly like i described earlier with respect to the monthly premium beneficiary and death benefit with term life insurance you pick how many years your policy will last typically you can choose anywhere from 1 to 30 years when the term ends you need to renew your policy just like with car insurance or renters insurance the older you are the more expensive a new term life insurance policy costs as you might expect after all the odds of you dying do increase with age there are a few risks associated with term life insurance

if you're diagnosed with a serious health condition like cancer or diabetes and your policy ends you might not be able to renew or maybe your 30-year policy just ended and when you went to renew the price was 10 times what you've been paying before these are real risks but for the most part they can be managed by purchasing a 15 or 20-year term policy and renewing it every four or five years by purchasing a new policy and canceling the old one the cost will increase slightly with your age but it shouldn't be that big of a jump and if you've been diagnosed with something that makes you uninsurable you have at least 10 if not 15 years of coverage remaining renewing every four or five years also gives you the advantage of being able to purchase more or less coverage based on your life situation and what you need permanent life insurance

which includes whole life insurance universal life insurance and variable life insurance is different than term life insurance in one big way there is no term permanent life insurance is yours to keep for your entire life as long as you keep paying the monthly premium if you're diagnosed with a serious health condition it's still yours just keep paying the monthly premium and on top of that, in general, the monthly premium will never change man I'm making permanent life insurance sound pretty good right about now but what about the cost this is where things start to go south in most cases permanent life insurance will cost anywhere from 15 to 20 times as much as term life insurance for the same amount of coverage when i first learned about this price difference i just couldn't believe it in my mind 

there was no way that permanent life insurance could cost so much more than term life insurance so just for fun i got two life insurance quotes for a 30-year-old male non-smoker in great health the first was for a 15-year term life policy with a death benefit of one million dollars the lowest price policy available was 21 dollars and 50 cents per month when i swapped the policy out for a whole life policy the monthly premium went up to almost 350 dollars that's more than 16 times the price of the term life policy if i went with the whole life policy it would cost me more in just one year than the term policy would cost over the entire 15-year term so what makes that whole life insurance policy so expensive simple remember how earlier i mentioned that life insurance gets more expensive as you get older and are thus more likely to die when you purchase permanent life insurance you need to account for the cost of that insurance over the course of 

your entire life when you're young and you have a low chance of dying insurance is very inexpensive as you saw in the example you can get 1 million dollars of term life insurance from age 30 to age 45 for less than 22 dollars per month but as you get older and are therefore more likely to die your life insurance costs will increase dramatically let's pretend i'm 70 years old instead of 30. that same 15-year 1 million dollar term policy would now cost almost 1 000 per month when you buy permanent life insurance you're overpaying at a young age in order to subsidize what your life insurance will cost when you're much older the insurance company takes those massive overpayments and invests them which helps them further subsidize the cost of eventually paying the death benefit when you die let's pretend for a moment that i'm a life insurance company i sell a permanent life insurance policy to our 30 year old male from earlier the monthly premium is 350 the average male in the us lives to be about 76 years old so he'll be paying 350 per month for 46 years as the life insurance company i'm going to invest every dollar that's paid in premiums if i plug in all these numbers into my trusty compound interest calculator from investor.gov and assume a conservative return on investment of eight percent i wind up with two million dollars when you die i pay your beneficiary the value of the policy one million dollars and i keep the other million for myself had you not paid for that whole life insurance policy and instead invested those monthly premiums you could have enjoyed that money during your lifetime and still left behind a larger inheritance when you died this my friends is the life insurance trap you jump into that trash chute with the best intentions to provide for your loved ones if you die young and leave behind a nice inheritance in the form of a death benefit if you don't but instead of saving and investing your money you're giving it to an insurance company which stands to make a profit by saving it and investing it themselves squeezing every dollar they can out of you and paying just a fraction of it to your loved ones when you die as i mentioned earlier millions of people fall into the permanent life insurance trash chute every year so what can you do to make sure you and your loved ones don't get crunched i'll break it down into three easy steps number one get a term life insurance policy in place if you need one if no one depends on your income but you you probably don't need a term life insurance policy if you have enough money saved that those who do depend on your income wouldn't be affected financially if you died you probably don't need a term life insurance policy either but if you have loved ones who depend on your income and would not be able to continue living their current lifestyle without it get a term life insurance policy how long should the term be 15 or 20 years what should the death benefit on the policy be 12 times your annual income check out my other video on this very topic for the full explanation link is in the description you can purchase term life insurance through an online broker like zander insurance or pacific insurance group they'll do the shopping for you and provide you with a list of different options i've personally used xander and had a positive experience pacific insurance group provided the quotes that i used in my experiment earlier i am not affiliated with either company but links to both are in the description number two cancel your permanent life insurance policy once you have an appropriate term life insurance policy in place you may have sunk thousands even tens of thousands of dollars into a permanent life insurance policy already but now you know better call and cancel it if you've had the policy for a long time you might even get a check for the cash value of the policy that you can put toward debt or an investment number three tell your friends and family about the life insurance trap educate them help them understand how a term life insurance policy will cover their needs and how a permanent life insurance policy will rob them of a financially secure retirement show them this video and encourage them to spread the word together we can defeat the Stormtroopers and save the galaxy from the dark side do you have a term life insurance policy in place do you have any questions about life insurance in general let me know in the comments box hope you will visit again.

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