Fun with Math: Compound Interest.
So let’s have some fun with math. An insurance agent calls me today to try to upsell me on my policy, which is for a $250,000 life insurance plan which expires about age 70, but pays me back my premium when I hit retirement, or can be borrowed against in an emergency.
For the bargain price of only $200 more per month, they are willing to go ahead and let me take that policy with no expiration date, which means that I would pay $200 more per month and someone could collect that whopping $250,000 insurance policy when I die all the way up to age 121, instead of the policy expiring at retirement.
I don’t know how they came up with that age 121, but whatevs.
So anyway, I thought about this for a nanosecond and said “Let me do the compound interest on this thing.”
So I did.
My $20,000 initial investment, with an additional $200 per month all the way until I’m 121 years old (it could happen) would only pay out $250,000 after I am dead, but if I put the same money into a compound interest bearing account at 8% for that same time period the money would be worth $13,242,359.11.
Even if I only live to about 85 years, I’d still make a whopping $784,000 on the same cash.
So I did the math real quick for the insurance lady and she got the message.