Comparing The Forex With Investing In Insurance

Comparing The Forex With Investing In Insurance



Comparing the​ Forex With Investing in​ Insurance
Investing in​ Forex is​ more risky but the​ gains that can be achieved are a​ lot larger than insurance,​ although insurance is​ a​ very good long term investment.
While there are innumerable kinds of​ life insurance available,​ they can be simplified into two general types: those that insure against death only and those that not only insure against death but make a​ provision for savings in​ addition to​ insuring .​
The first type is​ called term insurance.
It pays off only in​ the​ event of​ death .​
While it​ is​ worth nothing to​ the​ individual himself,​ since he never gets his hands on​ any of​ the​ money that went to​ pay the​ premiums,​ it​ does generally provide the​ maximum death benefits per dollar of​ premiums at​ the​ younger ages .​
Its sole purpose is​ to​ insure against death .​
As its name implies,​ it​ is​ written for a​ term—1,​ 5,​ 10,​ 20,​ 25 or​ 30 years—and if​ the​ term expires before the​ insured dies,​ that is​ that .​
There are no more premiums due and he gets nothing from the​ insurance company except the​ right to​ renew the​ policy for a​ longer term and/or the​ right to​ convert the​ policy to​ permanent insurance without a​ medical examination.
Policies other than term insurance cost more than term insurance initially and the​ additional premium provides essentially one thing savings for the​ person insured .​
Now the​ main question to​ answer from an​ investor's point of​ view is,​ What do I​ get for this additional premium in​ the​ way of​ a​ return on​ my money?
If a​ ten-year term policy is​ purchased the​ average net cost per $1,​000 is​ $3.91 per year,​ and if​ a​ 20-year term policy is​ purchased the​ average net cost is​ $3.82 .​
It gradually goes down according to​ the​ length of​ the​ policy,​ but if​ term insurance were bought each year,​ for just one year,​ the​ annual rate would be higher with each renewal since the​ older a​ person is​ the​ greater the​ likelihood of​ his death.
If he waits until he gets to​ age 55 the​ cost of​ term insurance rises tremendously .​
a​ five-year term policy at​ age 55 costs $21.85 per $1,​000 and a​ ten-year policy $23.26 .​
Term insurance usually may be maintained only until the​ insured is​ age 65 .​
Thus,​ if​ a​ man kept term insurance to​ age 65,​ but died at​ age 66,​ his beneficiaries would get nothing and all of​ the​ premiums he had paid for this insurance would go down the​ drain.
These policies all provide nothing in​ the​ way of​ savings and there is​ no return on​ your money that you,​ the​ insured,​ will ever get .​
Your beneficiaries will get the​ face of​ the​ policy at​ your demise.
In contrast to​ term insurance there is​ permanent insurance .​
This is​ insurance that may be kept as​ long as​ the​ insured wishes to​ keep it .​
If the​ insured lives,​ he has built up a​ substantial cash value in​ his policy which he may take in​ cash or​ as​ income or​ which he may leave with the​ insurance company as​ paid up insurance.
The most popular form of​ permanent life insurance is​ convertible whole life insurance,​ sometimes called ordinary life or​ straight life.
Convertible life requires the​ lowest premium of​ all permanent insurance plans .​
Premiums may be paid on​ this policy as​ long as​ the​ insured lives or​ for a​ shorter period of​ time depending upon the​ objective of​ the​ insured.
Permanent insurance has a​ level annual premium for the​ duration of​ the​ premium paying period .​
The annual premiums in​ the​ early policy years are in​ excess of​ the​ actual premium needed to​ cover the​ risk .​
The excess premium is​ called the​ reserve and it​ is​ this reserve,​ together with interest earned on​ the​ reserve plus future earnings,​ which provide the​ cash needed to​ pay death claims in​ the​ later years.
If we consider that the​ 20-year term rate is​ the​ pure cost of​ insurance,​ and that the​ difference between this rate and the​ straight life rate represents the​ savings element of​ his premiums,​ you​ determine this savings element by subtracting $3.82 from $17.70,​ which equals $13.88 .​
Over 20 years this savings element amounts to​ $277.60 .​
For this total of​ $277.60 put in​ in​ premiums,​ $403.94 was collected—a profit of​ $126.34 over 20 years,​ or​ $6.31 per year.
The $277.60 was not put in​ all at​ once,​ but over a​ period of​ 20 years .​
Nothing was invested at​ the​ beginning of​ the​ 20-year period,​ and in​ the​ twentieth year the​ whole sum was invested,​ so that the​ average investment for the​ period was halfway between nothing and $277.60—$138.80 .​
The return on​ this figure is​ the​ true return,​ and $6.31 per year on​ $138.80 is​ a​ little under 5%.
Let us consider the​ Retirement Income policy at​ 65,​ bought by a​ person 25 years old .​
Over a​ period of​ 40 years,​ he puts in​ $30.92,​ the​ annual premium,​ times 40,​ or​ $1,​236.80 .​
If the​ average net cost of​ the​ pure insurance feature is​ assumed at​ $7.79 per annum and the​ cost is​ subtracted from the​ total annual premium of​ $30.92,​ we get the​ investment in​ the​ savings element of​ the​ insurance,​ $23.13 times 40,​ or​ $925.20 .​
For these invested savings the​ insured gets back $2,​326.81 at​ age 65-40 years later-a profit of​ $1,​401.61.
If we use the​ same reasoning in​ regard to​ the​ average amount invested over the​ period (one half of​ $925.20),​ we arrive at​ an​ investment of​ $462.60 .​
The profit or​ return per year is​ determined by dividing the​ total profit of​ $1,​401.61 by 40 years and we get $35 per year .​
This $35 represents a​ return on​ the​ investment of​ $462.60,​ or​ 7½% per year.
How good an​ investment is​ this $462.60 that grows to​ $2,​326.81 in​ 40 years? It is​ almost identical with an​ investment of​ $462.60 which returns 4% per year if​ the​ 4% is​ left in​ the​ investment to​ be compounded annually .​
The discrepancy between the​ 7½% per year and the​ 4% is​ explained by compounding.
The 4% compounded is​ not a​ bad yield .​
It is​ roughly equal to​ the​ return of​ an​ insured building and loan association in​ the​ year 1962,​ but not as​ good as​ the​ better yielding ones.
Now the​ characteristic of​ the​ Retirement Income policy is​ that premium payments end at​ age 65 .​
The insured is​ now entitled to​ $2,​326.81 if​ he left his dividends in.
Further,​ the​ insured can have his $1,​597 (due him if​ he took his dividends out) paid to​ him and/or his heirs at​ the​ rate of​ about $10.00 per month for 157 months (a full refund) .​
If he is​ still living at​ the​ end of​ the​ 157 months,​ the​ insured would continue to​ receive $10.00 per month for the​ balance of​ his lifetime.
If desired,​ an​ alternate amount or​ alternate type of​ annuity could be selected.
In addition to​ the​ guaranteed amounts,​ there would,​ of​ course,​ be dividend income payable each month in​ accordance with the​ company practice .​
The present income dividend is​ about 10% extra per month.
All of​ the​ above income would be tax-favored as​ compared to​ ordinary investment income.
The income or​ annuity return per $1,​000 of​ accumulated cash in​ the​ insurance policy is​ guaranteed by contract as​ of​ the​ date of​ issue for future delivery .​
It is​ interesting to​ note that the​ cost of​ an​ annuity at​ 65 has been increased seven times in​ the​ last 20 years as​ the​ science of​ geriatrics has prolonged life.
There is​ one type of​ policy which represents the​ savings element alone and does not provide the​ insurance element .​
This is​ the​ annuity .​
You make a​ cash payment early in​ life,​ or​ periodic payments throughout your life,​ in​ order to​ get an​ income when you​ retire or​ pass a​ certain age.
At age 25,​ for an​ annual premium of​ $100 for 40 years,​ you​ can get (a) $8,​201.47 in​ cash at​ age 65 or​ (b) monthly payments of​ $51.34 for the​ rest of​ your life.
You have invested in​ 40 years 40 times $100 or​ $4,​000,​ and at​ age 65 this has grown to​ $8,​201.47 .​
It has better than doubled.
To find the​ average annual return,​ we determine the​ profit ($8,​201.47 less $4,​000) which equals $4,​201.47 and divide this by 40 to​ get an​ annual profit of​ $105.
The average investment is​ halfway between zero and $4,​000 and is​ equal to​ $2,​000 .​
The annual return is​ thus $105 divided by $2,​000,​ or​ 5¼% .​
This represents considerably less than 4% compounded annually.
If the​ option of​ $51.34 per month is​ selected instead of​ the​ sum total of​ $8,​201.47,​ it​ takes between 13 and 14 years to​ exhaust the​ total,​ and if​ you​ live longer than this number of​ years,​ you​ have come out ahead.
Most other policies provide savings,​ and the​ return on​ these savings is​ what we are concerned with here .​
While the​ yield on​ the​ savings is​ low it​ must be pointed out that by entering into an​ insurance contract the​ insured is​ forced to​ save what he might otherwise spend .​
a​ second advantage in​ buying policies other than term policies is​ that if​ the​ insured falls on​ hard times these policies are worth something in​ cash to​ help tide him over; and if​ he can't keep up the​ premiums there is​ a​ cash reserve to​ pay premiums for awhile .​
If term insurance premiums cannot be met the​ policy lapses.
One insurance company took what it​ considered to​ be a​ typical year as​ regards death claims and determined what the​ insured's family got back in​ relation to​ what was paid .​
It determined that the​ average insured who was paid off that year collected $1.75 for every $1.00 put into premiums,​ and the​ average number of​ years each policy had been in​ force at​ the​ time of​ death was 22.6 .​
The return was 4% per year,​ and the​ insurance company points out that the​ 4% return was tax free in​ that no income tax was taken out either as​ the​ policy went along or​ when final payment was made .​
This 4% equals 8% in​ income for a​ person in​ the​ 50% tax bracket.
The return on​ the​ savings element of​ life insurance can be determined by reference to​ the​ attached table .​
The major types of​ policy have been compared for ages 25,​ 40 and 55 as​ to​ annual premium,​ value of​ the​ policy in​ cash at​ different ages and monthly payments which can be received from age 65 to​ the​ end of​ one's life.
Two of​ the​ greatest benefits of​ life insurance depend on: (1) inheritance taxes and (2) the​ uncertainty as​ to​ when the​ insured will die .​
These factors are not related directly to​ return on​ investment but cannot be minimized in​ any consideration of​ life insurance.
Long term it​ is​ very difficult to​ lose money if​ not impossible and the​ returns can be good.
The Forex is​ more risky but you​ can limit your risk by using good Forex software.




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