ebrown p wrote:
Now we are getting somewhere... and thank you for expanding your arguments.
My thesis is that, due to how economics works, buying term life and intelligently investing the money you save, will almost always mean you have more money (for the same insurance coverage) in the long run.
That all depends on when you plan on dying.
Let's construct an example so we're not dealing with vague generalities. Suppose Will and Tim are identical twins who buy life insurance policies on their 25th birthday.
Will buys a whole life policy with a $100,000 death benefit and a $100/month premium that will not increase. Due to paid-up additions, the death benefit will increase by 1% per year compounded (a very conservative assumption, but I'm giving all the benefits of the doubt to term insurance here).
Tim buys a term life policy that expires in ten years. The policy also has a $100,000 death benefit but the premiums are only $20/month. At the end of the ten-year period, Tim buys another ten-year term policy, but the premiums go up by $20/month every time he buys a new policy because he is a worse actuarial risk every time he renews.
Both Will and Tim keep paying on their policies until they reach the age of 75. Tim also invests the difference between the premiums he pays and the premiums that Will pays. On their 75th birthday, both Will and Tim are killed in a vicious attack by a rabid wombat. Whose beneficiaries are better off?
At the end of 50 years, Will has paid $60,000 in premiums, whereas Tim has paid a paltry $36,000 -- a difference of $24,000. Tim, of course, has diligently invested that $24,000, so his heirs get that amount plus any increase. Will's heirs get around $162,834 in death benefits, which is $62,834 more than Tim's heirs get from his policy. In order for Tim's beneficiaries to do better than Will's, Tim has to invest his $24,000 so that it ends up being larger than $62,834. Is that possible?
Well, sure it's possible. Indeed, it may not be very hard at all, so long as Tim always invests this money, never withdraws any of it, and doesn't get caught in some stock market crash or other financial disaster along the way. And if Tim is that kind of guy, then he is better off sticking with term life. But suppose he isn't. Suppose he's not the kind of guy who can be trusted to diligently save his money every month and keep it socked away in a grade-A investment over the span of 50 years. Then it's clear that he would have done better to follow Will's strategy, since the whole life policy, in effect, forces
the policyholder to save every month.
Of course, if Will and Tim live past 75, then the math starts looking worse and worse for Tim, since his premiums start costing more
than Will's for the same amount of coverage -- that is, if he can get coverage at all. On the other hand, if Tim dies when he's in his thirties, he comes off looking like a genius*, since at that point he is still paying very low premiums on his term policy.
*Depending, that is, on how he dies. Nobody looks like a genius if they die, for instance, in an accident involving a cheese grater.
ebrown p wrote:
My claim is that when you look mathematically and rationally at these two options, term life and wise investment will almost always be a better deal.
It all depends.