The Secret Legacy Behind "Buy Term and Invest the Difference"

In 1965, AL Williams died of a heart attack. He had a whole life policy, but it left the remaining Williams clan underinsured. This left an impression on his son, Art L. Williams, Jr, whose cousin later introduced him to the concept of term life insurance, which was relatively unknown at the time and provided much more in face value at cheaper rates.

Fueled by the financial hardship his family had endured, Art launched himself into an ambassadorship of term life with an almost religious fervor. He coined the phrase "Buy term and invest the difference", BTID for short, launched a new company on the concept, had some 200k agents under his umbrella, and the rest is history.

Or is it?

Some 40 years later, a study published in the May 2015 issue of Journal of Financial Service Professionals indicates that Williams's grand experiment had unintended consequences for families. "People don't buy term and invest the difference", said David F. Babbel, the study's co-author. "They most likely rent the term, lapse it, and spend the difference", leaving many families uninsured instead of simply underinsured when a loved one passes.

Even the small percentage of people who do fully execute Art's advice and invest the difference may invest emotionally in the market by buying high and selling low, or buy managed investments without realizing the potential impact of associated fees to their nest egg. People who think they are playing it safe by overfunding a 401k beyond the amount an employer matches often don't consider that, if the management fee is 3%, they must make a 3% return each and every year to break even and protect their principle.

Supposing everyone who bought term actually did invest the difference wisely, whole life still offers advantages that BTID doesn't. Whole life locks in insurability, allowing the insured to purchase additional coverage with accumulated cash value, even if their health has declined to the point that they are no longer able to buy new policies. Further, they can borrow against the cash value, convert it into guaranteed income, or take tax-free distributions.

Chris Blunt, executive vice president of New York Life, points out the value of BTID to the investment firms, says "Generations of Wall Street professionals have been trained by their firms to trash cash value life insurance so the investment firms could maintain those dollars under management. " He also points out that there's no need to decide between term and permanent life insurance. Young families can purchase both, and convert the term to whole life as their income increases.

Art Williams' legacy consists of overpriced term-only options and a drastically reduced pool of agents who, like the Wall Streeters mentioned by Mr. Blunt, push only one product and openly disparage every other option available to their prospects, calling cash value insurance "trash value" and an "awful product" and touting BTID as the only solution for everyone. The 40-year look back on this way of selling life insurance detailed in this study does not support these claims. America's families deserve more in terms of both options and advice.

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