When it comes to financial advice for women, many turn to Suze Orman. She's been featured on CNN and MSNBC, as well as in trusted publications like the Wall Street Journal and the New York Times. She's also very well known for her advice concerning life insurance: "Buy term and invest the difference."
According to Suze, you're better off buying a cheaper life insurance policy and putting the extra money into your financial portfolio.
But there's something very important that she's not telling you.
The #1 Problem with "Buy Term"
Term life insurance isn't permanent. It doesn't cover you for your whole life. For example, if you're a healthy 35-year-old woman and you buy a 30-year term policy, there's a very good chance you'll outlive your policy. After all, you'll only be 65 when the term ends. What do you do then?
You could re-apply with your current insurer...if you're prepared to pay substantially higher premiums. When you first applied, you were 35 and healthy. Your premiums were probably pretty low. But now you're 65. Even if you're healthy, you're going to pay a lot more because you represent a higher risk to the insurance company. Can you afford a premium payment that's double or even triple what it was when you first bought your policy?
Term life insurance works for people who aren't interested in investment alternatives, or using life insurance to supplement their retirement. But if you're looking ahead and are interested in those things, you should consider a form of permanent life insurance.
The #1 Problem with "Invest the Difference"
There's another consideration that Suze isn't talking about, and it's a big problem for many families across America. Money is tight. Sometimes the car needs a tune-up, or the kids need braces, or the basement floods. Can you actually afford to invest the difference, as Suze advises...or do you need that money for those periodic expenses that really put a dent in your budget?
Investing is largely a game of willpower. If you have the willpower to set aside money to feed your accounts, you stand a better chance of success. But if you don't, you might need a little push. Permanent life insurance is that little push. You have a monthly premium that funds your cash value. It's not an option to make that payment. It's required. You'll essentially be forced to save. This system works for many people who would otherwise spend the extra, or who don't trust themselves to make smart investing decisions.
That's not the only problem. Suze Orman tells people to invest the difference between a term policy and a permanent policy in things like a Roth IRA or mutual fund. But that's assuming your Roth IRA or mutual fund is going to give you a greater return than the cash value attached to your life insurance. In this volatile stock market, that's not a certainty. With permanent life insurance, you have options in terms of your cash value growth. You can collect a set percentage of interest that won't change even when the market drops. You can also tie your growth to a stock index, if you like the idea of taking advantage of market gains. Overall, buying permanent makes a lot more financial sense for a lot of women.
Check out this video to learn more about how life insurance can help you during your retirement: