Life Insurance Options

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Feb 8, 2008 10:04 pm

OK all you math whizzes, here's a question....

I have an option between two life insurance policies.  The first is a 20-year level-term policy that has premiums of $191 per month.  The second is a 20-year level-term policy for $469 per month with a money back guarantee.  That is, if I outlive the 20 years, I get back all the premiums I paid.  Is there a TVM calculation (cash flow), or a opportunity cost calculation that can tell me if the money back policy is worth it.  At first glance, it doesn't seem worth it, but is there a math calculation to determine it.  Thanks!
Feb 8, 2008 10:52 pm

Nope.


 
One, you can get your money back if you survive the term.  The other, you don't.  If you "take the difference" and ASSUME that they can get a positive return, you're still not going to be as well off as buying a permanent policy.
 
It's not a question of math.  It's a question about how a policy can be considered as a financial asset and enhancing one's estate and the options that having such a policy can open up for the insured.
Feb 9, 2008 12:12 am

FV of 469 no interest for 20 yrs equals $112,560


FV of 268  (469-191)  for 20 yrs depends on AFTER TAX rate of return.


10% = 211,105


8% =  163,748


4.9% = 112,957
 
Therfore if you can get 4.9% after taxes you could have more money in your account at the end of 20 years.  Plus if you die before the policy ends your beneficiaries also get what you've saved.
 
And yes I'm bored and my wife is asleep on a Friday night.