Buy Term and Spend the Rest

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Buy Term and Spend the Rest

How buying term and investing the rest fails

Yes, I’m saying it. I know it’s controversial. The battle between whole life insurance and term insurance is real. I won’t bore you with a lot of math. After all, it’s not like I’m going to tell you that buying term and investing the rest doesn’t work. It absolutely works—in Fantasy Land. Fantasy Land is where everything works. In Fantasy Land, The Rock and I are twins. I can run faster than Usain Bolt, and I can fix anything like Tim “the Tool Man” Taylor. I’m always right, and my friends hang on to my every word because I’m Yoda dipped in chocolate.

In my Yoda voice, “Term buy, spend the rest, you will.”

Buy term and skip the rest

Look, folks, I’m tired. This old broken-down body just can’t take it any longer. Dave Ramsey says to buy term and invest the rest, and Suze Orman says the same. In theory, it does work, but Suze nor Dave actually works with individual clients and their finances. So, either they don’t see what I see, or they choose to ignore the facts. The fact is that people are barely saving for retirement. Most people are buying the term and skipping the rest. They aren’t saving for the life insurance that they’ll need when they get older. They are buying stuff that they need right now!

I need to see those books playa

The next time someone says that they buy term and invest the rest, I’ll say show me your books. I need you to prove it. I need to see the quote from the whole life policy that you used to compare it to the term policy because I know you made an informed decision, right? Then I’d like to see that you’re investing $200/month, and it should only be for your insurance. I need you to make an appointment with me at the end of your policy and show me that you’ve replaced your term policy with the investment, and you hit your goal meaning you never pulled money out or paused your investment. You also need to make sure you didn’t lose half of it in a lawsuit like a divorce or something. I need to see those books playa.

Americans aren’t even saving

Again, I’m not saying that mathematically it can’t work in your favor. I admit that diligent people can make it work, but let’s face it, who is that diligent?

You may be thinking to yourself, “well, I am that diligent.”

Be real, how many Americans have time to be diligent about all the things we SHOULD be diligent about? As a financial advisor, I fight with people to save enough for retirement, let alone save enough for life insurance on top of that.

Let’s face it, nobody is saving money. The savings rate in the United States is about 8%. That’s not enough for retirement. That is not enough for a down payment on a home or to fix a roof or whatever life throws at you.

The first flaw in the “buy-term-and-invest-the-rest theory” is that most American’s are not disciplined enough to “invest the rest.” Term gives too many options; you could take money out and buy a car if you wanted, whereas life insurance is just that —life insurance. Term makes it more challenging to spend wisely; 92% of Americans aren’t even saving.

Let’s just assume you are in the 8% and that you actually follow Dave Ramsey, Susie Orman, and my advice.

Let’s say you are saving for retirement like you should and living below your means.

Why wouldn’t you buy term and invest the rest?

Again, I am not saying it doesn’t work, but we assume that the rate of return is a guarantee, and we believe that we will accomplish our goal of replacing our term insurance. What if we go into recession right before you die? Now what? What if you get a divorce, and your spouse takes half? Now what?

What if you had a few too many, and get in a car crash and kill someone? Now what? What if a zombie apocalypse happens, and there is no way to get your money out of the investment? We have to be prepared for the worst folks—family planning.

Seriously, think about this, are you rebalancing your portfolio to mitigate risks so that you are prepared for a downturn?

Are you checking in on your investments every year to make sure you are tracking? Even after putting in all of this work—balancing your portfolio—something tells me that you probably won’t end up as far ahead as you might have imagined with the term versus just buying some whole life insurance.

Let’s keep it real

I like to keep it real. The issue you’re having with buying permanent insurance vs term insurance is that YOU want to have access to the money in the investments!

Ahhhh, just like most, you’re sitting across from your beautiful spouse, and you think, “wait, she will get all the money, and I won’t get to use any of it. HELL NO! I want some jet skis too, Armond!”

If that’s your truth, baby, then so be it. I’m not mad at you, but you and I both know you can’t say that in front of your wife.

“Nah, baby, I don’t want to waste OUR money on no life insurance. Let’s buy term and invest the rest, girl!”

Let’s use things for their intended purpose. There are no bomb-sniffing cats. Nobody uses a hammer to drill or marries a husband for good looks—I am the ONLY exception.

Life insurance is supposed to be there when you pass away so that there is money for your family to take care of final costs and try to pay off any debts you incurred. It is so that you don’t have to sell assets prematurely and gives your family time to assess the situation before they start selling assets. There is no confusion with your family when it comes to life insurance. Not like whether or not you are going to sell mom’s home while Uncle Stewart still lives there. Freaking Uncle Stew, he never did anything right! Anyway… It’s life insurance; it’s not complicated.

I get it though; it’s tempting to buy term and invest the rest.

Is it the best decision for you and your family, though?

Honestly, I’m not positive that you and the people you leave behind are going to make the best financial decisions with the money you leave behind—if there is any money to leave—like I stated before, most people buy term and spend the rest.

If you haven’t already, buy The Financial Effect e-book to get more insight on how to make financial decisions for your family, also subscribe to my blog.

*Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear a loss, including total loss of principal.