Term Life or Cash Value Insurance: Which is Better in Today’s Financial Environment?

The United States is currently in the midst of one of the worst economic crises since the Great Depression. Because of this, families are trying to find ways to save a little extra money. Experts agree that many families make mistakes by reducing or eliminating their life insurance at a time when protection is most needed. Difficult economic times, higher unemployment, and an uncertain recovery period actually put families at greater risk, as it is more difficult for a surviving family to recover from the emotional and financial loss of a breadwinner.

The situation is further complicated by confusion regarding the types of life insurance policies offered today: term life vs. Cash value plans. The debate revolves around the benefits or drawbacks of buying cash value life insurance (including comprehensive, universal, variable, and return of premium plans) vs. buy less expensive term life insurance and use the savings to pay off debt and build investments. The discussion has gone on for years, but it deserves a fresh look as new products are now available and the attitude of American families towards debt has changed considerably.

First and foremost: life insurance is for protection

The real focus of the debate between Term Life and Cash Value plans should be on what each product accomplishes and what the cost or sacrifice is for the insured and their beneficiaries. Presented mathematical comparisons tend to manipulate numbers to promote the outcome desired by either party. Life insurance, first and foremost, is for protection and having the right amount is your most imperative goal. Also, an insured only needs a policy as long as his or her premature death places a financial strain on his or her family. Higher cost Cash Value plans (often 8 to 10 times more expensive) are based on the concept that people need “lifetime” policies, as they will always be in debt and unable to meet the obligations of their family. These higher-cost cash value plans actually perpetuate this concept of “lifetime” borrowing by reducing the amount of coverage a family can afford when they need it most and by redirecting funds toward a low-cost savings plan. rates of return while continuing with a much higher credit card and other plans. debt expenses.

Insurability, Flexibility and Savings

Term Life plans today offer guaranteed level premiums for 15, 20 and 30 years, providing safe and stable long-term options and allowing families to focus on more beneficial financial goals during these periods. In addition, the forced savings and flexibility aspects of bundling all your savings needs into one cash value plan to potentially use for education, retirement, housing and emergency needs significantly overlook more advantageous plans. Programs like 529s and ESAs (Education Savings Accounts), along with equivalent company retirement plans, 401k, Simple IRAs, and especially Roth IRAs, offer much better investment options, can be set up as retirement plans. forced savings and offer tax benefits and rates of return much higher than that of life insurance.

Many advocates of these plans will emphasize that Term Life insurance is temporary in that it can expire and eventually leave the insured’s family unprotected. In addition, the savings account that is part of the Cash Value plans are forced savings that help offer flexibility to meet the various needs that families will face in the coming years. In earlier times, statements like this may have been accurate, but with the introduction of so many new products and tax-favored investment options, the benefits of these types of plans have been significantly reduced.

Is Term Life Insurance the Only Answer?

Term insurance isn’t the answer to every family’s financial problem… but it doesn’t pretend to be. It allows families to focus on getting the right amount of protection at the lowest possible cost and to focus their funds on more important and productive strategies, such as establishing an emergency fund, paying off debt, and seeking quality investment options to build wealth. This is the true value of Term Life policies that is often overlooked by all the other sales tactics employed within the life insurance industry. The real shortcoming of Cash Value plans is that they focus on trying to be everything to everyone and, in turn, dilute their effectiveness. America is a society strained by debt and struggling to balance our finances and responsibilities. Cash value plans weaken a family’s ability to overcome these challenges by perpetuating debt under the guise of safety and security.