Buy Term Invest the Rest is a strategy that provides an alternative to whole life insurance policies. The rationale for such a strategy is that one can invest the savings in premiums one receives by purchasing an inexpensive term policy rather than a pricier whole life policy. The accumulated savings and investment returns will then make up a sum of money for one’s insurance needs in future when the term policy ceases.
Here’s the Math for such a strategy:
Jack, a 24-year-old non-smoking man, wishes to insure himself for $200,000 against death, total & permanent disability and critical illnesses. A 35-year term policy will cost him $642 a year. A whole life policy costs $3,018.00 per year, and the premium term is 35 years (he pays 35 years of premiums to be covered for his whole life) for the sake of easier comparison.
The difference in premiums works out ......