Pros and Cons of the Buy Term and Invest the Difference Strategy

Using the buy term and invest the difference strategy can provide life insurance purchasers with a number of advantages. At the same time, this strategy falls short in a number of different areas. Here are some of the pros and cons of the buy term and invest the difference strategy. 

Pros

One of the biggest advantages of this strategy is that you will be able to save money on your life insurance premiums. By purchasing term life insurance, your annual premiums will be much less than they would if you were to purchase whole life insurance.

Another advantage of this strategy is that you will be able to have control over the investments in your portfolio. When you invest in whole life insurance, you are basically giving money to the life insurance company to invest on your behalf and a fund manager will be in charge of choosing investments for you. When you utilize this strategy, you will be able to use the money to buy stocks, bonds, mutual funds, real estate or anything else that you want. This allows you to have complete control over your money.

Perhaps the biggest advantage of this strategy is that you will be able to make bigger returns and actually get to keep the money. With whole life insurance, the returns on the amount of money that you invest are very moderate. You should be able to beat these returns with almost any investment that you choose. With whole life insurance, you will not be able to access the money unless you cash in the policy or take out a loan. Usually, the cash value of the policy is a fraction of the amount of money that you have put into the policy. When you put money into an investment account, you can have access to it whenever you want.

Cons

One of the disadvantages of this strategy is that it only provides you with life insurance for a predetermined amount of time. The hope is that you will be able to accumulate enough money in your investment account that you will not need to have life insurance again. However, sometimes it does not work out this way and you are left without a life insurance policy.

Another disadvantage of this strategy is that it requires a great deal of self-discipline. Most investors do not have the discipline that it takes to be successful with this strategy. In order to make it work, you have to remember to take the difference between whole and term life insurance and invest it regularly. Determining the difference between these two prices can be difficult and you may not know how much money to invest. You will also have to consciously make the decision to do this even when times are tough. If you have a whole life insurance premium that is due, you are much less likely to avoid paying it.

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