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Tuesday, June 18, 2013

Life insurance: Better return on investment than the lottery

By Lisa Swan

Every time we hear about the lottery, whether it be Powerball, MegaMillions, or your state lottery, we may rush out to play it, and fantasize about what we would do with the money. After all, all it takes is a dollar (or two) and a dream (and a gazillion to one odds) in order to potentially win big bucks at the lottery.

People get together in office pools and play money at the lottery, and do it on their own. But the real financial windfall you may get is not by playing the lottery, but by buying a life insurance policy. You can buy a term life insurance policy for a few hundred dollars a year -- about the amount some people spend on lottery tickets!

Lottery tickets have very poor odds

Insurance.com recently noted that the average odds to win the Powerball is around 175 million to 1. But unfortunately, the odds of you dying is 1 to 1 – as in that we are all going to die. And if you have permanent life insurance, also known as whole life insurance, the chances are that your loved ones will receive the proceeds are pretty much certain. After all, that is what a life insurance policy is there for. Permanent life insurance is generally significantly more expensive than term life insurance, but even so, it is a better deal than playing the lottery.
Life insurance offers financial security and potential return on investment
The 100% probability of death makes return on life insurance investment more probable

Even the reasons that you might need to have a term life insurance policy, which cover you for X amount of years, are, unfortunately, higher than you might think. “The chance of dying after age 25 before reaching normal retirement age is 1 in 6 for men and 1 in 9 for women, a 2007 Milliman Inc. study for the LIFE Foundation found,” Insurance.com says. Those are not fun odds. But that is something you must think about when doing your financial planning.

And imagine the burden on your loved ones if you are one of the people to die before retirement age. Funerals are more and more expensive these days, and that does not even include final expenses like burial or cremation.

Not to mention how your loved ones will survive without your income if you were to pass away. Not only will they miss having you in your life, but they could be left financially destitute without you. If your spouse is a stay-at-home parent, he or she might have to go back to work without your income. Your partner may have to sell the house if you have a mortgage.

But that financial equation changes if you have life insurance. Yet some of the same people who will plunk down money for lottery tickets may not think about how much more paying for life insurance can do for them financially. It is a strange conundrum.

Life insurance rates or term and whole life insurance may differ, but with both life insurance rates, there is a much better return on investment than the lottery. To learn more about life insurance, and how it is an important part of having a good financial future, click here.

About the author: Lisa Swan writes on a variety of life insurance topics. She lives in New York City.