Let’s answer the question, and let’s not shy away from the
frightening truth. If you pass away while you are covered under a
term insurance life insurance policy, there will almost surely be
an explosion of value.
Let’s answer the question, and let’s not shy away from the frightening truth. If you pass away while you are covered under a term insurance life insurance policy, there will almost surely be an explosion of value.
Now an explosion of value does not in any way mean that the dollars paid to your loved ones (beneficiaries) represent a good return on the dollar versus what your life is ultimately worth figuratively or literally. Not at all.
What it does mean is that based on what was paid in premiums, the return (the face value paid to your beneficiaries) will represent a tremendous value, i.e. the rate of return, when calculated will be very high. This is, no doubt, why insurance carriers are very careful about who they insure and why. Health and age are critical because the insurance carrier is betting that you will live. There also must be “an insurable interest.”
Here’s a clear example. Someone insurable at some age purchases a 20-year term policy. Each month, presuming a monthly mode of payment, $100 is withdrawn from the owner’s insured account.
The face value is, say $500,000, which represents some number of years’ income. Replacement of earning is one main reasons for purchasing life insurance.
OK, now the unthinkable happens and the insured dies at the end of the 12th year. Total premiums paid in equal $14,400. The face value of $500,000 is paid to the insured’s loved ones.
In mathematical dollars and cents language only, that represents an explosion of value. Therefore if one had not the means to achieve that rate of return on the same amount of money invested in other assets, and one was to unfortunately die prematurely, then it is entirely possible and even probable that your term policy could be your best investment.
Remember, you do not buy life insurance because you are going to die. Life insurance is purchased to protect loved ones and insurable interests, and to answer the question, what if.