Term Life Insurance Waste of Money?

I am starting to think that term life insurance (http://www.ad_deleted.com) is a waste of money. When you consider that only 2% of term policies ever pay out, it seems to be true.
ROP terms can be an alternative but often one can get a better return on the additional premiums on his own so you're subject to opportunity costs as well as insurance costs.

Universal and indexed universal seem to be good alternatives but then again they cost more.
Any opinions?

of course i have tons of opinions on this topic.

any time you hear a "one size fits all" solution i can guarantee it is a wrong-headed solution. term is not always right, whole life is not always right, and all the stuff in between is not always right.

bottom line, if you need a pickup truck to haul things around, you will do poorly by purchasing a sedan.

if you need a commuter car only carrying yourself and a passenger or two, a truck is kinda ill-conceived.

you should use term when you have a SHORT TERM need. if you have a LONG TERM need you should use (usually) whole life. if you have maxed out your deferred and exempt investment opportunities (IRA, 401k, etc) and you have some need (or use of) additional insurance then variable universal life may be of interest.

in fact, in straight cost, universal and whole life will cost LESS than term after about 10ish years.

term is the most expensive insurance option available ... when used for long term protection. it does in fact pay out in only about 2% of in-force policies so from an insurance company perspective ... it is a MONEY-MAKER. this is why you need to beware of "self appointed" experts telling you to only look at term.

by the way, i carry a TON of term and a TON of non-par whole life. looking at adding some VUL and i also carry significant annuity (variable-deferred and fixed immediate).

Agree with 1_more_opai

a lot of my (and my clients) need for life coverage stems from needing key-man insurance to cover debt facilities in my ventures. There is a time and a place for term insurance, and it is not just about the payout - it is risk mitigation, and that costs money.

But then I am more in the entrepreneuring area, so others have different mileage.

To the extent that you hope your house never burns down or floods or that your are never in a car wreck, it could be said that property and casualty insurance is a "waste of money." In the same vien, I think term insurance has to be viewed with a "back to basics" perspective on risk managment. You buy it to cover the possibility of a loss (your life) over a certain time period, and hopefully it won't pay off! True, it does get more costly as time goes on, and using those premium dollars to fund some type of cash value policy is an alternative to consider. However I think one should periodically re-evaluate the need for life insurance in relation to one's overall assets, and term insurance provides a lot of flexibility in this regard. A 20 something starting out may need substantial coverage to protect a spouse and young family, and it can be obtained relatively cheap. A 40 something may still need some coverage but find that the amount needed can be reduced, thus managing the outlay for premiums. A retiree with substantial accumulated assets may decide it's time to drop the term policy all together. Although it can be argued that someone reaching this stage might continue to benefit from the tax management strategies cash value variations provide, my feeling is such strategies should be pursued only if there is a real continuing need for life insurance. I'm not a "termite" necessarily, but I do believe the basic purpose of life insurance should indeed be life insurance.

Best of luck in figuring this one out.

Also for the senior who has accumulated assets don't forget to include permanent life insurance as an estate planning strategy.

-Joe

gaken

Well said. I pray everyday my insurance company makes 100% profit on my term policies. On most days my wife feels the same way.

If you think your insurance company(ies) are grossly profiting off you (and they are, of course), buy some stock in that company. You will feel better when your rates go up 15% at renewal time if you have made 25% in a year due to their outrageous profit margins each earnings session.

Do the same with your electric company, gas station, health insurance provider, bank, etc., and it could very well ease that pain in your pocketbook when you send them a check.

That way, you will still have coverage if something happens, as well as some money in the bank (or brokerage account).