The opportunity cost of the term insurance premiums. Term insurance may be the most suitable recommendation for some client's circumstances. Their insurable need may only last the duration of the term, and term insurance may provide the greatest coverage for what they are able to afford. |
You can only know the true cost and benefit of owning term insurance at your death. At that time you would add up all the premiums paid and compound them at interest to determine the opportunity cost of term. The cost would need to be weighed against the benefits received. |
Future Value of an Ideal Investment = FV(Total Rate of Return, Years of Accumulation, Annual Contribution, Initial Balance, Contributions at Beginning of Period) Amount Invested = Initial Balance + sum of contributions Opportunity Cost of Term Premiums = Sum of Cumulative Annual Term Premium Paid * Investment Total Rate of Return Term Premiums = sum of term premiums paid Opportunity Cost of Ordinary Taxes = Sum of Cumulative Annual Ordinary Taxes Paid * Investment Total Rate of Return Ordinary Income Tax = Sum of Annual Taxable Growth * Ordinary Tax Rate Total less expenses = Future Value of an Ideal Investment - Amount Invested - Ordinary Income Tax - OC of Ordinary Taxes - Term Premiums - Opportunity Cost of Term Premiums. A year-by-year illustration of this solution is displayed in worksheet form by clicking the Documentation button. |