Buy Terms And Invest The Difference

Term life insurance plays an important role in protecting individuals, businesses and families from the premature death of a breadwinner or key person. In many instances, term life insurance is chosen because of its apparent low cost. Like most things in life, if something is low cost, there usually is a reason. Contrary to the public understanding, a long-term strategy of “buy term and invest the difference” can have significant costs to the insured and the ultimate beneficiaries.

The LEAP SYSTEM® helps consumers understand that term life premiums and its lost opportunity cost may be expensive over the life expectancy of a consumer who employs such a strategy. The potential loss of the death benefit of the term life policy may leave the invested difference account vulnerable to income taxes, estate taxes, market declines, and liquidity problems.

Although term life insurance plays an important role in many financial situations, one must consider all of the factors associated with the cost of the premiums over time, the potential loss of the earnings on those premiums, and the ultimate possible loss of the death benefit at the end of the term. If the term life policy has expired and the stock market is perhaps in a downward cycle at the time of the ultimate death, the effects of this strategy can be financially damaging to heirs.

For a more complete understanding of this subject, this approach educates consumers on various forms of life insurance coverages. No particular type of policy is uniformly the best in all circumstances.

The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.


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