The buy term and invest the rest strategy has become an increasingly popular investment approach in recent years. By purchasing term life insurance and investing the money that would have gone towards permanent life insurance premiums, individuals can potentially accumulate more wealth. This strategy allows investors to gain adequate life insurance coverage while also building an investment portfolio. When implemented properly, buying term and investing the rest enables investors to get the most out of their money. There are several key factors to consider when using this approach, and investors must be disciplined to make it work effectively. Overall, the buy term and invest the rest strategy can be a powerful way for investors to meet multiple financial goals simultaneously.
Term insurance provides temporary coverage at a lower cost
Term life insurance provides coverage for a specific period of time, typically 10-30 years. Premiums are significantly lower compared to permanent life insurance policies like whole life or universal life. Term insurance only covers the insured during the term and does not have a cash value component. This makes term insurance an affordable way to gain needed coverage. Investors utilizing the buy term and invest the rest strategy leverage these lower term premiums to free up money to invest elsewhere.
The saved premiums can be invested for growth
The premium savings from buying term rather than permanent insurance are considerable. Someone age 35 may pay $150 annually for $500,000 of term life coverage versus $1,200 for a permanent policy with the same death benefit. That’s an extra $1,050 that could be invested each year. With a moderate 6% annual return, investing $1,050 annually over 30 years results in an accumulated sum of over $100,000. This demonstrates the potential of the buy term and invest the rest strategy.
Discipline is required to invest the premium difference
The buy term and invest the rest strategy only works if investors have the discipline to actually invest the premium savings, rather than spending it. Automated transfers of the saved premium amount into investment accounts can assist with discipline. Investors should also have an investment plan for growth – whether using mutual funds, ETFs, real estate, or other assets. Failing to invest the premium difference negates the strategy’s usefulness.
Re-evaluation is needed when the term expires
Most term insurance policies expire after 10-30 years. Upon expiration, the insured must either renew the term policy or purchase a new policy if coverage is still needed. Premiums rise significantly as the insured ages. At this point, investors should re-evaluate the buy term and invest the rest strategy. The funds accumulated may reduce the need for such large coverage. Or some permanent insurance may be advisable. Proper planning is key when the term policy expires.
Balancing insurance needs and investment goals
Utilizing buy term and invest the rest requires carefully weighing current life insurance needs against long-term investment goals. Investors must be disciplined about investing the premium savings for growth. With proper implementation, buying term insurance and investing the rest can be a powerful wealth-building strategy that leverages the strengths of both insurance protection and investment growth.
The buy term and invest the rest strategy leverages lower term insurance premiums to free up money for investing and wealth accumulation. When utilized correctly, it enables investors to gain adequate life insurance coverage while also pursuing investment goals with the premium savings.