SHORT TERM LIFE INSURANCE

Advertisement For decades, the rallying cry of the financial advice industry has been for clients to buy inexpensive term life insurance rather than more expensive whole life insurance and invest the premium savings on their own. The only problem is most clients never execute the second part of the equation, leaving many of them uninsured in later life and unprepared for retirement.

“People don't buy term and invest the difference,” said David F. Babbel, professor at the Wharton School of the University of Pennsylvania and co-author of “Buy Term and Invest the Difference Revisited,” published in the May 2015 issue of Journal of Financial Service Professionals.

“They most likely rent the term, lapse it and spend the difference,” he said. And even the minority of those who do invest the difference are prone to the real-world emotional investing when individuals investors tend to buy high and sell low, perennially underperforming market indices, he added.

“Our study sheds light on Wall Street guidance that has been taken as an article of faith, but that clearly underperforms for many who follow it,” said Mr. Babbel.

The study received partial funding from New York Life, but Mr. Babbel noted that all of his previous research and that of other researchers cited in the paper were not subsidized and all have undergone rigorous peer review. Advertisement