Cash Value life Insurance ad'vice'

Cash Value (especially Indexed Universal Life) is one of the most talked about Life Insurance products in the insurance industry today and also a big MLM (Multi-level Marketing) operation with a promise to make you a "business owner". 

Why do you need to stay away from this ? Read on....

Product	Pure Term Insurance	Cash Value Insurance	Which is better?
Description	In Term Life you pay a flat amount per month (premium) for coverage for fixed period of time (10, 15, 20, 25 or 30 years). For Example: You pay $25 per month for a 20 year $500K policy (actual quote for a healthy non-smoking male 28 years of age)	In Cash value "insurance and investment" are combined. This comes in a lot of varieties: Whole life, Universal Life, Indexed Universal Life, Variable life , Return of Premium (ROP) Term (yes!!! return of premium term is a cash value policy disguised as term) In every one of these cases you pay a premium which gets split 3 ways: 1. Upfront fees 2. Insurance cost 3. Cash value which will earn interest : The main selling point of this policy is that the returns on this cash (which are tax deferred) will more than make up for the cost of insurance and you can access this cash tax free (through surrender or a policy loan at a rate of interest determined by the insurance company)	Instead of buying a "cash value" most experts recommend "buying term insurance and investing the difference (BTID) approach".  The difference can be invested in a tax deferred IRA or a regular brokerage account or a real estate

Detailed Analysis	Buy Term Invest the Difference (BTID)	Cash Value Insurance                       ("Trash" Value Insurance)	Which is better?     (Hint..it starts with a B!)
Money Accumulation	You accumulate your money immediately in an IRA or a Brokerage account. You are compounding your money from the get go	In early years you earn very little cash value as most of it is gone towards fees and there are hefty surrender charges. This will eat into your long-term return as you are not compounding your money initially	BTID
Return on Money	You can earn an average of the market (6-8% a year) if you invest long-term and with cash flowing real estate you can generate even higher returns in the long run	Guaranteed returns are much lower (2 -4%). Also, long term returns will be lower due to low early accumulation. The argument is that these should be compared to after tax returns from BTID but there are tax strategies even with BTID like 1031 exchanges with real estate etc.	BTID
Access to Money	You have the flexibility to withdraw whenever you need the money (except from an IRA). With Real estate you can access cash through HELOC, Cash Out Refinance, or even buy a bigger property with 1031 exchange	You either need to surrender the policy or borrow at interest rate fixed by the insurance company (5-7%)	BTID
Value of Insurance	If you die, your family will get the face amount of insurance and the money in the IRA or brokerage or the real estate	If you die, Option 1: Your family will get the only face amount and not the cash value  Option 2: Your family can get the cash value also but you have to pay higher for it	BTID
Cost of Insurance	Fact is most people don't die during the "Term" and feel they are paying the insurance company free money (the main reason cash value is appealing for these people) ...but what they don't realize is they are only paying a fraction of the face value. In the above example for the $25 per month for $500K policy for 20 years...you pay 25X12X20 = $6K!!!!!!!!! You can easily make up this money and more from the return when you "investment of the difference". The Insurance company will only charge for the "odds" that you might die and a small margin for pure term insurance	Fact is you will pay (about 3K) every year for this policy i.e., the cost of a 20 year term in the first 2 - 3 years!!! and will keep paying in the same hefty amount (yeah it will earn interest on it) to cover for the insurance costs which exponentially increase as you grow older...when you will not really need life insurance as you will have your retirement income and little to no financial responsibilities. Don't be fooled by the huge values shown in illustrations by insurance agents to get you buy the cash value insurance, they are hypothetical. Look at the guaranteed values, in these the cash value can actually go to zero!! even when paying 3K a year...as the low rate of return you earn coupled with high insurance cost can take your account value to zero. You will need to put a lot of money into this for it to work the way it is illustrated and "generate millions"	BTID

In spite of all this why do insurance agents recommend cash value ? Simple. They earn thousands of dollars by selling a cash value but will only earn hundreds if they sell term. I almost got suckered into a cash value life insurance and got out at the last minute after doing my research...I hope you will learn from it and not do the mistake which can cost you dearly.

Summary: "Buy Term and Invest the Difference" Cash value does have its advantages for the super rich who would like to leave a lot of cash (by avoiding taxes) to their heirs to pay their estate taxes. It for the 1% but for the 99% the best way to go is "Buy Term and Invest the Difference".