Life Insurance Strategy
So what’s the best way to maximize future security and minimize up-front cost? First, look to term life insurance. We mentioned that premiums for permanent life insurance are much higher than for term insurance. That’s because all of us are guaranteed to die at some point. But term life insurance premiums depend on the likelihood of the policyholder living to a certain age. That means a 25-year-old can buy 30-year term life insurance for practically nothing per month. Why? Because of the very low risk that a 25-year-old won’t live to age 55.
But buying term life insurance young isn’t necessarily a great value because that risk is so low. The best coverage cost/benefit value comes when a 35- to 40-year-old buys a new 30-year policy, because the chances of dying begin to rise exponentially toward the end of that term, ages 65 to 70, while premiums remain relatively low.
A good basic plan is to
- buy cheap term life insurance and
- save and invest the money you aren’t spending on permanent life insurance.
That investment, as it grows over time thanks to the magic of compound interest, will become a nest egg that might make your death benefit look like peanuts.