Buying whole life insurance in the workplace.
Buy term and invest the difference? Why it may not be the best advice.
By Chad Bodner, Vice President, Worksite Sales
Ask a financial professional for advice on what kind of life insurance to purchase and you’ll likely hear these words: “Buy term and invest the difference.” You’ll hear the same from radio host Dave Ramsey and others. This conventional wisdom is common – so common it has its own acronym - BTID.
It’s sound advice for some, depending on their financial discipline and economic situation. But is it always good advice? I don’t think so.
One strategy does not fit all.
For the sake of argument, here are 3 reasons why BTID could be horrible advice for your clients and their employees:
1. Not everyone who buys term invests the difference. They might have good intentions of doing so, but then “life” happens. The money they saved buying term life insurance goes toward a car payment, replacing a furnace or any number of financial expenses that may arise over time.
2. BTID is based on the assumption that by the time term policyholders reach their 50s or 60s they’ll no longer need their term life policies. They won’t have a mortgage and their investment accounts will have grown to the point they can self-insure using their own wealth. But that’s not the reality for most people. In fact, a recent study showed that only 23 percent of workers are “very confident” they'll have enough money saved for a comfortable retirement. 1 Another study found 44 percent of Americans ages 60 to 70 have a mortgage when they retire, with as many as 17 percent saying they may never pay it off. 2
Many are faced with the tough choice of either paying for more term insurance (which costs much more as they get older) or foregoing life insurance altogether (and leaving their loved ones without the financial protection life insurance provides).
3. Insurability – what if they develop a health condition and can’t qualify for a new term plan? When term life insurance expires, those who still have a need for life insurance may opt to purchase another term. However, they’ll need to be in good health in order to do so. If they aren’t, they could find themselves unable to purchase the coverage they need.
A case for Group Whole Life
With term life insurance you’re essentially “renting” coverage. That’s fine for covering a temporary need, such as having funds available to pay off a mortgage. If you feel you will need life insurance for the rest of your life, however, whole life insurance is often a better option. Group Whole Life insurance provides a level of security above employer-provided coverage or term life insurance an employee may have purchased on their own. It offers:
- Portable coverage—if an employee switches jobs or retires, they can take coverage with them3
- Benefit amounts that won’t decrease and premiums that won’t increase
- Access to cash value via loans
- Accelerated benefits—the option to advance a portion of the death benefit in the event of terminal illness or chronic illness4
- Optional riders to enhance coverage (including a level term rider designed to provide level-premium, level-benefit term life insurance for a 10-year period)
Sure — “Buy Term and Invest the Difference” might be good advice for some. For others, though, purchasing a permanent whole life policy could make all the difference in the world.
Want to learn more about Assurity’s Group Whole Life insurance? Contact your Regional Sales Team at 800-276-7619 Ext. 8964.
- Employee Benefit Research Institute (EBRI) 2019 Retirement Confidence Survey
- Retirement and Mortgages Survey, American Financing, 2018
- The insured person’s certificate must be in force for at least 6 consecutive months before coverage terminates and a written request with first premium payment for the portable coverage must be received by Assurity within 90 days of the certificate termination date.
- Accelerated Death Benefit for Chronic Illness Rider is included through age 70 in states where allowed.