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Life Insurance Policies Plan B

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THE SCENARIO Recently, I covered a choice between two different types of life insurance policies. When looking into it, I found that I most likely wouldn't be able to have half a million dollars by the end of a decade if I invested the difference between a more expensive policy and the less expensive one. But what if I wanted to buy the cheaper policy, invest the difference during the Term policy's decade of existence, and after the Term policy ends I start investing the entire $400 that I would have paid on the Permanent policy? Let's see how long it would take me to reach my $500K goal if I did that. The question: Assuming that I can consistently earn 9.5% on my investments, I invest $350 per month for the first 10 years, and then invest $400 per month after that, how long will it take me to get to $500,000?
THE SOLUTION This one has two parts, both of which are pretty straightforward.
  1. Find out how much I have at the end of 10 years
  2. Find out how long it will take me to get to my goal after that
First things first, make sure the calculator is using 12 Payments per Year. Part 1: After 10 Years N: 120 (I'm investing $350 per month for 10 years, which is 10 x 12 = 120 months) I/YR: 9.5 (I can earn 9.5% on my money) PV: 0 (I start with nothing) PMT: -350 (I invest $350 per month for the first decade) FV: (This is what I'm trying to find)

After a decade, I'll have $69,678.24.

Part 2: After the First Decade N: (This is what I'm trying to find) I/YR: 9.5 (I can earn 9.5% on my money) PV: -69,678.24 (From Part 1) PMT: -400 (Instead of paying $400/month for the Permanent policy, I'll invest all of that money) FV: 500,000 (My goal is to have half a million dollars by the end)

I'd have to invest $400 every month for 192.97 months (around 16 years) after the first decade to reach my $500K goal.

This means that it'll take me around 26 years to have half a million dollars in my investment account if I buy the Term policy instead of the Permanent policy.

What do you think? Would you go for the Term policy, with its lower premiums but shorter duration, or do you prefer the Permanent policy with its extended duration but higher premiums? Why is that? Let us know in the comments!