No Such Thing as a Free Lunch

Lately I’ve been seeing a Term Life Insurance commercial guaranteeing a full refund of premiums if the insured person is still alive at the end of the policy’s term period. How can that be possible?

Well…Since absolutely nothing in life is free, the insurance company’s engineers (their Actuaries) simply calculate how many extra dollars must be added to the policy’s basic premiums, and at what rate of interest, over the policy’s term period, to equal the refund amount. ( Well yes, there’s a bit more to the calculations, but I don’t expect you to venture into the calculus weeds with me…Just take my word for it.)

Buying into any pie-in-the-sky get-your-money-back scheme is fraught with disappointment. Premiums for the “refund if you live”(RIYL) term life insurance must be significantly greater than those required to cover the policy’s guaranteed Death Benefit…so the Beneficiaries of the poor soul who dies before the end of his/her RIYL policy’s term period receive fewer insurance dollars than would have been he case if the bloated premiums had all been used to buy additional life insurance.

And…what about the buyer of RIYL insurance who decides to drop the insurance? Times and circumstances change. I’ve not read the fine print in one of the RIYL policies, but I’ll guess that getting any pro-rata refund would be a challenge or impossible….same goes for the guy/gal who dies two days before the end of their policy’s term date.

Life insurance is a hedge against dying too soon, not living too long. Before jumping into any RIYL term life insurance, talk to a professional financial advisor. Most are Fiduciaries who typically don’t charge fees for an informal conversation with you, and even if they did, it would be money well spent. Look for letters like CLU, ChFC, CFP, CPA, on their business card. Such professionals are valuable resources for you.

Carpe Diem