113: What Term Insurance REALLY Costs You

Hello, everyone.

I'm John Montoya, and I'm John Perrings.

We're authorized Infinite Banking Practitioners and hosts of the

Strategic Whole Life Podcast.

Episode 113, the true cost of term insurance.

Hello everyone.

John Perrings here with the Strategic Whole Life podcast.

I'm going solo today.

And today's episode is really almost like a part two to episode 111.

So if you haven't listened to that yet.

Definitely go back and give that a listen.

In that episode, we talked about unbundling the true

costs of whole life insurance.

And so today in the same vein, we're going to again, dig into some numbers

and we're going to look at the true costs of term insurance this time.

And if you've been taught to buy term and invest the difference, stay tuned because

I think you'll be surprised by what we show you in this particular episode.

All right.

So let's kick this off by going back and reviewing.

Asset classes, right?

So we've talked about this before and there are different types of assets

out there, different classes of assets.

You've got stocks, bonds, treasuries, real estate, cryptocurrency, your business,

these are all different asset classes.

Life insurance, specifically whole life insurance, which is a permanent life

insurance, is just another asset class.

There's a lot of strong opinions out there about, whole life insurance versus term,

which is what we're talking about today.

But if you really boil it down, whole life insurance is just another

asset class and it has its place in your financial life, just like any

of those other asset classes do.

So something interesting that I see out there is people are very

adamant about paying a lower price for their life insurance.

So they talk about buying cheap term insurance to cover

the life insurance side of it.

Yet, if you ask those same people whether they'd rather pay a lower amount for

where they live by renting or a higher amount for where they live by paying,

making a mortgage payment and buying a house, most of those same people

would say they'd rather pay the higher amount to buy the house where they live.

And the reason for this is pretty simple.

It's because they know they're buying an asset and every time they

make a mortgage payment, it builds equity in their house, in the asset.

And so what's crazy is this conversation is actually the exact same conversation

when it comes to buying term insurance or buying whole life insurance.

And when you buy term insurance, it's just like renting an apartment

or renting a house every time you make your rent payment.

You make that every month and then when you move out of the apartment, you

don't get any of the rent money back.

It's the same thing with term insurance.

You make your term premiums and when the term is done, the policy is done and

you don't get any of that money back.

Whole life on the other hand is much more like buying a house where every

time you make a mortgage payment, you build equity in the house.

With whole life insurance, every time you make a premium payment,

you build equity in the policy.

That equity is just called the cash value.

And so when you look at it like that, the term versus whole life a lot of

the objections that people have towards it, they stop making as much sense.

If we're in the market to buy life insurance, do we want to

have it as a liability or do we want to have it as an asset?

It's really very simple.

What makes term insurance a liability is statistically speaking, it's something

like 1 percent of term insurance death benefits actually pay out.

With term insurance, you have the life insurance protection during

a time, when you're statistically v ery unlikely to need it.

Then at the end of the term, you no longer have the life insurance protection during

a time when you're guaranteed to need it.

So it's a little bit backwards in terms of, having only term

insurance to protect your life.

That's why the premium price is so much lower.

Because the insurance company understands this and that's how

they're able to price it that way.

The risk to them is very much lower during that term, during the age

when you qualify for term insurance.

So just understanding that helps us get our head around comparing these

two types of types of life insurance..

Now, knowing this, we can't just compare the premium price at on its face, right?

We can't use grade school math and just add up the premiums and compare

these two life insurance products because it really just doesn't

tell us the full story, right?

Whole life insurance is an asset.

Term insurance is most likely a liability.

When we compare these two things, we actually have to use financial math.

And when we use financial math, we have to include the variable of time.

And then we also include a cost of money aspect to it.

And so if we look at term insurance let's use a 1 million

level term insurance policy.

That's a 30 year term.

The.

The way we can't just add up the premiums over 30 years and come to the cost.

We actually have to assign a cost of money.

So let's say the cost of money is 4%.

So we're giving up 4 percent every year on top of the premiums

that we're paying over 30 years.

That's actually the correct way to calculate the cost, not the

price of the term insurance.

The price is your premium.

And in this example, I'm going to go over it's $1,100 a year.

That's the price.

But the true cost of that depends on how many years you calculate it.

And then we have to take into account that time and then take into

account the cost of money, which in this example is going to be 4%.

That's called the net compound costs.

And that's really how we're going to analyze those two.

So you can take the net compound cost of term premiums, assuming

the death benefit does not pay out.

And you can compare that to whole life insurance and the net compound

cost of those premiums, knowing that anytime you want to stop the Whole

life insurance policy, you get the cash surrender value back or you know

that the death benefit is guaranteed to pay out when you die, not if you die.

So there's a future cash flow involved there.

So even though the premium price is higher, the net compound cost is

much lower because you're building something all along the way.

What I'm gonna do now is I'm going to switch over to a couple slides

and I just wanna graphically try to illustrate this for you guys.

And so if you're listening in your car or audio only, when you get to

a place where you can pull over, you can go to strategicwholelife.

com and we have the video posted there, or you can go to our YouTube

channel, which is also, you can find it at strategicwholelife.

com or you can go to www.youtube.com/@strategicwholelife.

So let me switch over to my slides here.

Okay.

I've got my slides pulled up.

I've got my laser pointer turned on so you can see where I'm.

Where I'm pointing at.

And again, what we're looking at here is the net compound cost over

two to three generations, looking at a $1M, 30 year level term policy.

And during that 30 year term, this is going to be $1,100 per year for

the $1M death benefit coverage.

So what we're looking at here this person buys the policy when they're 40 years old.

And so in 30 years, they're going to be 70 and they're going to retire.

And so the.

The common way of thinking about insurance is that once you're

retired, you don't need the insurance anymore because you're done working.

You don't need to protect your income.

Totally separate discussion, but I think I'm going to show

why that's false on its face.

If you care about.

Generational wealth or passing on a legacy, but it's also false in terms of

what it can do for you in your retirement, where it becomes asset protection.

But I don't want to go too far down that rabbit hole.

We're just looking at the net compound cost of term insurance right now.

So here we are age 70, 30 years later, the $1M term insurance policy drops off.

It expires.

We can now see that the net compound cost of that term insurance was $62,000

assuming a 4% annual cost of money.

And so what we did is we gave up $62,000 with those Term insurance

premiums over that 30 years.

That's what we gave up.

And now here we are at 70 years old and we have nothing to show for

that $62,000 because this is term insurance and the term policy expired.

Now, what I do want to point out.

And this is a little bit of another aside is you actually

could keep this insurance policy.

And this may not be true for every term insurance policy out there, but for the

one I'm looking at, you actually do have a contractual right to keep this policy.

But what happens is the premiums go way up from here.

So they paid $1,100 a year for the 30 years of the term.

And if they wanted to keep this for another year, those, the premium would go.

From $1,100 to $61,000.

So that's 60 times what they were paying for the previous 30 years.

In fact, this person can keep this policy for up to age 95.

And that's in year 55, the premium would be $883,000 in order to keep it.

And of course, so it, it just keeps going up and up every year.

So it goes from $61,000 at age 70 all the way up to $883,000 at age 95.

I just wanted to point that out because it actually helps us understand why the term.

Premium price is so low because they've really just carved out

a chunk of the actuarial curve and created this level product.

But if they wanted to keep this for longer, they would need to catch

up with their actuarial costs or else the insurance company can't

take on the risk to do that.

Okay.

So they retired age 70.

They stopped paying premiums, but what they're still going to live for a while.

So let's just take a look at their, the net compound costs

over their life expectancy.

And we'll just use age 85.

At age 85, the net compound cost of this term insurance, this cost them $112,000

by the time they get to age 85 that's what they gave up for paying for this policy.

So this isn't obviously a massive amount of money, but it's quite

a bit of money when you compare it to the term price where people

are not really thinking about it.

That low monthly price actually has a significant real net compound

cost over a period of time.

And if we take a look at what this costs, the estate.

So this is $112,000 that did not get passed along to the next generation.

And so the 112 doesn't seem like that big of a deal over an 85 year lifespan.

But if we look at what that would have cost the next generation by

not making it over to the estate, and let's say this person lives

another 50 years, this person's son or daughter lives another 50 years.

At the end of this person's lifespan, that's $800,000, right?

And so that starts to look like some real money $800,000.

Now that's over basically 95 years.

And so that could still.

Not look like the biggest deal, which maybe it's not, but that's $800,000.

But the, this is just the cost of the premiums of one 30 year

term insurance policy, right?

This is just the lost opportunity cost of what those dollars could have done.

If they had gone to some other 4% investment rather than

buying the term life insurance.

What, though did we give up by not receiving the $1M death benefit?

Because that $1M dropped off, what did we give up by not getting that?

That's what I want to show you next.

And this starts to look.

Very significant.

We're up here in the orange.

These are the net compound cost of the term premium.

But look at the net compound cost of that $1M that this person's

son or daughter did not receive.

Over the course of the Generation 2's lifespan, if they lived to

age 85 as well, this was $6M.

That's starting to become real money.

$6M, just assuming a 4% cost of money.

Six million bucks.

But what if we took this out just one more generation and looked at the grandchild?

What would happen if we looked at what they lose out on over the

lifespan of the grandchild as well?

And now we're looking at this.

Here's the original slide and what we originally missed out on

with the million dollars in red.

And now this is what it could have grown to in purple.

And so we go out two generations and that's $43M at a 4 clip that

this family could have had in their life if they had just respected the

fact That million dollars, what that could have done for their family.

And this is the kind of thing that I really want to hit home with people.

People look at the price of whole life insurance.

This absolutely is something that could stay in that family, in that estate,

if they had a permanent death benefit.

This never goes anywhere.

If you have a permanent life insurance death benefit,

you're never giving this up.

And in fact, this would be much greater if they had a 1 million whole life

insurance policy, because the way they, the way that we structure whole life

insurance this death benefit would probably grow to something more like

three to 5 million for each generation.

And so if you start adding on the 4 percent onto those numbers,

it's just starts to dwarf.

Anything that could happen with this lost term insurance death benefit.

So this is really what I wanted to point out.

This is the true cost of term insurance because again, statistically

speaking, it's highly unlikely that it'll pay out, but statistically

speaking, it's guaranteed that you're going to die at some point.

And so why on earth would we not want to have a guaranteed outcome paired with

the guaranteed event of us eventually dying, which we all have to do?

So you know, if you have any questions on how I came to these numbers.

Get in touch with us.

You can head over to strategicwholelife.

com.

You can book a free 30 minute consultation with us right there, and we can walk

through exactly how these numbers work.

And if this is starting to resonate with you a little bit head over there.

Strategicwholelife.

com.

Book an appointment with us, and we can start to talk about how we can

make these strategies not only create.

Massive wealth, two generations down the road, but also create very good

wealth for you while you're still alive, using the strategies that can be

paired along with whole life insurance.

The Infinite Banking Concept, of course, being the number one.

All right, everyone.

Thanks for tuning in and looking forward to seeing you on the next one.