We set up our clients with their own private retirement plan. Unlike a 401K, our clients enjoy no taxation – ever. No risk of loss, and a guaranteed tax free income for their entire life.
The concept of buying term life insurance and investing the difference (BTID) originated in the 1970's, a decade of economic turmoil for the United States.
In August 1971, President Nixon abolished the gold standard enabling the dollar to float against other currencies. This encouraged both individuals and corporations to take on debt.
Two years later, in response to the United States aiding Israel, after military aggression by Syria and Egypt, other Arab nations (OPEC) enacted an oil embargo causing the price of oil to quadruple.
These events commingled with additional government mismanagement contributed to a period of economic stagnation, (high unemployment coupled with high inflation) in America.
About this time A.L. Williams formed a company that changed the life insurance industry literally overnight. Armed with over 100,000 agents, Williams entourage encouraged a "buy term and invest the difference" philosophy. Term insurance was and still is much cheaper than the traditional permanent policies ubiquitous for many Americans; and the concept spread quickly.
The Revenue Act of 1978 enabled the creation of the 401K, a plan where Americans were able to invest pretax earnings into the stock market. This massive infusion of money into the market saw share prices explode and "buy term and invest the difference" was very much a winning strategy at that time.
The life insurance industry was caught flatfooted. While relishing term policy premiums, ( 98% expire worthless) they wanted to compete with the enormous Wall Street marketing machine for Americans' retirement dollars. Baby boomers (people born between 1946 and 1964) were a growing segment of the population with money to spend, save and invest and the stodgy whole life policy had lost its appeal, yielding a lackluster rate of return; perhaps two percent or so.
Well healed insurance companies with more lobbyist power than any other industry countered with two new products Variable Life and Universal Life. These insurance products offered, and still do, bells and whistles that offered potential higher returns tied to the performance of the stock market. Yet like 401K's, the risk was transferred from the company to the respective employee or client! In theory, higher interest rates and stock market growth would boost policy cash values but two major stock market corrections in the last twelve years, coupled with historically low interest rates have harpooned policy holders.
Finally, some insurance companies have developed a product that fits peoples needs better than the outdated "BTID", at least from this author's perspective. While not a new product, few are aware of its existence. This plan offers stock market returns WITHOUT risk of loss, complete liquidity and a guaranteed, tax free income for life. Its available to any income level, any premium amount and any age although being younger is better as more of the premium goes to cash accumulation rather than life insurance.
Americans have relished this product contributing in, ( 2009 millions), (2010 tens of millions), (2011 hundreds of millions) and (2012 billions) and notably, premiums in 2013 exceeded the previous four years combined! Tony Robbin's in his best selling book "Money, Master the Game" writes in part "another type of life insurance can provide you with an income for life tax free while you are still alive"... He continues "the largest corporations and the ultra wealthy have been using this IRS sanctioned approach for decades".
Circling back to term insurance most policies expire worthless. Investing the "difference" pits you against the best investors in the world. Taxes, fees and wall street market manipulation further reduces your returns.
Term policies by definition are written with expiration dates. In order to renew higher premiums are guaranteed. In the last few weeks, I have seen a 40 year old paying $500 annually for a 20 year term policy with a death benefit of $500,000 that expires in a few months. This person has a family, and mortgages on his successful business and the family home and regrettably has some health issues.
His new premium for the same amount of life insurance will exceed $4700. annually. Another completely healthy person with an expiring term policy is seeing their premium increase from $800 to $3300 annually, same death benefit.
The bottom line is that life insurance should be purchased on a case by case basis and contacting your local independent agent, exploring ALL your options and selecting the best policy for you is a good first step. Many existing policies may be converted or modified to one that better suits your current needs. Bottom line... buy term and invest the difference is not a one size fits all strategy.
LIFE INSURANCE: Buy Term and Invest the Difference Examined