Buy term and invest the difference is a half-baked plan

"Buy term and invest the difference."

It is the most repeated sentence in personal finance, and those saying it are trying to protect you. They are usually right about the first half.

The second half rarely gets audited.

First, the part where the orthodoxy is correct, but with a time limit.

Two jobs ago I was helping life insurance companies repair the cash flow of legacy term life portfolios. It turns out even the actuaries who designed the policies did not plan with human behavior.

A term policy holds a level premium for 10, 15, or 20 years, meaning you know exactly what you pay every month for that time. When the term is up, it re-rates to actual mortality. Of 100 policyholders reaching that stage, roughly 90 walk away. The premium tripled and they are healthy, so they leave.

Those who stay and accept a 300%+ premium increase are, overwhelmingly, the ones who have a reason to. They know something about their health.

Term is inexpensive because it is designed to expire before you die. That is the product working exactly as intended, and it is why term is the right answer for a lot of people. If you have dependents and a thin budget, buy term.

Be aware of what you bought: a payout for someone else, conditional on you dying inside a window that is priced so you probably won't.

While you are alive, it does nothing.

The advice is not "buy term." The advice is "buy term and invest the difference."

While the first half is a product, the second half is a behavior.

We know what happens with behavior, if not systematized. The difference gets absorbed. It becomes a nicer car, or it just quietly becomes nothing.

For most people "buy term and invest the difference" ends with a lapsed policy and few investments. The math is fine, the advice isn’t.

I did not arrive here as a believer. Even inside the insurance industry — especially inside it — we are skeptical of whole life. I was too. I changed my mind slowly and against my own instinct, and I would rather show you the failure modes than the illustration.

In the early years it genuinely is a cost. My premium is $25,000 a year for the first four years, then $10,000 ongoing. Year one I could only borrow about $15,000 of it.

It is a slow but steady source becoming available over time. While initial returns will trail other strategies, it is also significantly less risky and highly predictable. After year 7, it outperforms most portfolios.

You are protected. You access to credit is in your control, bypassing credit institutions. Your death benefit is permanent. And, in most states, your cash value is protected from outside interests.

Two things break it, and both are discipline, not product:

And most policies sold are built wrong. Many distributors sell the product with the biggest commission, not the one designed best.

I do not hold an insurance license and I am not selling you a policy. My advice is to research Nelson Nash and talk to IBC Life insurance practitioners.

If you already own a whole life policy: pull your annual statement and find your base premium and your PUA split. It is on there. Divide the base by the total.

If your base is under 20% of the premium, ask your agent — in writing — why it was built that way and whether the rider is scheduled to switch off.

That one ratio is the fastest tell there is for whether your policy was designed for you or for the commission.

Reply to this email with your split and I will tell you what I think of it. No pitch, no license, no product to sell you. I just want to see them.

If you don't own one: don't go buy one this week because of an email. Instead, research it with an open mind. We also have Life Insurance Experts in our community, ready to help with any questions.

Engineer your future. Amplify your wealth. Live your way.

— Miguel

No, but it is incomplete. The math behind it is sound. The problem is that the first half is a product you buy once and the second half is a behavior you must sustain for decades. Most people never invest the difference consistently, which means the cash value they avoided paying for is never replaced by anything.

Because it is priced to expire before you die. A term policy holds a level premium for 10 to 20 years and then re-rates to actual mortality, at which point the large majority of healthy policyholders leave rather than accept the increase. The carrier is pricing a window you will most likely survive, so most policies never pay a claim.

Yes. The insurer lends its own money using your policy's cash value as collateral, so the cash value continues earning while the loan is outstanding. There is no credit check or underwriting, and no repayment schedule beyond the annual interest. Outstanding loans are deducted from the death benefit. Rates typically run 4–6% simple interest.

Base premium buys the guaranteed death benefit and the contractual cash value schedule. Paid-Up Additions buy extra paid-up death benefit and accelerate early cash value. A conservative IBC-style build runs roughly 40% base to 60% PUA. Policies written at 90% PUA look better on the illustration and tend to underperform over the policy's life, so the split is the fastest way to judge how a policy was designed.