A Suze Orman exclusive

Are You Worth More Dead than Alive?
Now then. When you take out this much insurance, make sure you watch your back: many of you may now be worth more dead than alive. JUST JOKING! It does sound like an awful lot of money, though, doesn't it? I bet many of you are thinking, who can afford $2,000,000 of term life insurance? But the answer is, YOU can!

The folks at Accuquote.com tell me that a $2 million 30-year level term policy (meaning, remember, that the premium won't go up during those 30 years) for a healthy 35-year-old male or female will cost about $1,945 a year. That's about $162 a month, or about one Starbucks latte a day. (If you opted for a 20-year level term policy, the monthly premium would drop to under $100 a month.) That really is a tremendous bang of protection for your buck.

Now your actual rate is going to depend on a variety of health factors, as well as what is being offered in this increasingly competitive industry. So do some term policy comparison-shopping at accuquote.com, selectquote.com, quickquote.com, and insweb.com, and see what it would actually cost you. Remember that the younger and healthier you are when you get a policy, the cheaper the annual level premium is. But check it out.

And the Financial Fight Goes on...
If you are still with me, I'd like to get back into the ring for a little longer and continue comparing term insurance with the other contenders. In one corner is the investment type of life insurance known as universal, whole life, or variable life. And in the other corner is level term insurance. My guess is that many of you would be tempted to place your bet on the investment insurance because of everything you may have been told about it in the past.

But before you lay your money down, let's walk through a scenario of what a healthy 35-year-old would pay on an investment insurance policy, such as universal life, versus a 30-year level term policy. My friends at Accuquote tell me at the time of writing this article that a $2 million universal life policy would run $11,640 a year, compared to the $1,945 for the 30-year term policy. Now at the end of the 30 years, assuming a policy contract with a 4 percent guaranteed rate of return, that universal life policy will have built up a "cash value" of nearly $430,000. Sounds great, doesn't it? But wait a minute; before start celebrating, ask yourself this: if the insurance company is guaranteeing you 4 percent yearly, how come when you do the math $430,000 appears to represent an actual yearly return of only 1.4 percent? Did that hit you where it hurt? If you invested $11,640 a year for 30 years at 4% tax free, you should really have $653,000, not $430,000. What's going on? The reason you have $223,000 less is that the rate of return you were quoted is before they subtract all the mortality charges, fees, and commissions that are part of the insurance policy. And don't forget that as you get older the mortality charges go up and up and up - meaning your return will go down and down and down.

But here's where it gets really interesting. If you stuck with the cheaper term insurance, then invested the difference in the two policies on your own - we're talking a yearly difference of $9,696 - you could do a whole lot better. Let's assume that over the next 30 years you could easily earn 5 percent a year investing in tax-free municipal bonds. At 5 percent tax-free, investing the difference between the term and "investment" insurance policies would generate a $672,465 pot at the end of 30 years. Now most likely at the age of 65 you will still not need $2,000,000 of insurance. Your kids will be financially independent, hopefully your home is close to being paid off, your car is paid off, and you have ample assets in your retirement account. So with the $672,465 to replace your insurance, you should be just fine. But this is what you should really keep in mind: assuming you're pretty healthy, odds are you're going to live at least another 20 years. In fact, your life expectancy is going to be 87. And you need money to live on in those golden years, right?

Well, if you just let the $672,465 continue to earn 5 percent a year for the next 22 years - without investing another penny - you'll have $1,967,000. That's very close to the $2,000,000 your family would have gotten if you had purchased the universal life policy at the age of 35.

So why do I insist the term insurance is better? Remember my friends, for you to get that $2,000,000 in the universal life policy you would have had to continue to invest $11,640 a year for an additional 22 years. And if you are only getting the guaranteed cash value, we're talking a mere $400,000 more. You get my point: stick with term for your insurance and do the investing on your own.