For 20 years, a life insurer pulled a little less than $90 out of my bank account.
What do I have to show for it, 20 years and $21,600 later? Nothing! Well, except that I’m alive, which is pretty great.
When I bought the policy, I got a lot of advice about what kind of insurance I should buy.
Most people I talked to said I should get simple level-premium term insurance, meaning the insurance premium would stay constant for 20 years (I could have picked other terms, but that one made sense to me).
Other folks said I should buy ‘permanent’ insurance, like whole life, universal life, or one of their related cousins. With permanent life insurance, you generally make larger premium payments upfront, but the insurance doesn’t expire, and the policy can build a cash value.
The pitch that stuck in my mind was: if you get term insurance, what do you have to show for it after 20 years?
That stuck with me because I’d have nothing: no insurance or cash value.
The term insurance proponents said, “buy term and invest the difference,” which meant I would take the difference between the cost of the term insurance and the permanent insurance and buy investments.
I wish I had a record of what the permanent insurance would have cost me back then to calculate what I ‘should’ have from investing the difference.
I bought term insurance but didn’t make systematic, monthly investments with whatever I saved. I saved, but not how the term insurance folks said I should (and I wish I had).
A few years after buying the term insurance, I finally had an answer to the question that stuck with me: what did I have to show for my term insurance after 20 years? I’d be alive!
Each year, I buy homeowners insurance. When my house doesn’t burn down at the end of each year, I have nothing to show for it except my house is still standing!
What I have to show for both kinds of insurance is protection. The fact that I didn’t need it isn’t the point because I didn’t know if I’d need it at the start: 20 years ago for my life and one year ago for my home.
We all face the risk of early death, car crashes, and houses burning down (or perils, in industry jargon). Actuaries and statisticians can tell us how often those things might happen on average, but they can’t say who it will happen to or when.
So, we pool our money with insurance companies, who profit by collecting the premiums from everyone and paying them out to those who suffered a peril.
Permanent insurance isn’t just insurance – it combines insurance and saving. In the past, I was hardheaded that it never made sense, but now I concede that there are applications for permanent insurance, but I still prefer term insurance.
Indeed, I’m delighted that I lost money on my life insurance policy. I bought a second policy that will expire in a few years, and I’m hoping no one collects on that one, either.