Playing the odds: Why life insurance is a smarter bet than a lottery ticket

You can't beat the return on investment Powerball jackpot winners get; a $2 ticket could make you a multi-millionaire.

But if you're really serious about providing financial security for your family, life insurance is a smarter bet than the lottery.

Both are built around the leveraging concept, says Jim Saulnier, a Certified Financial Planner in Fort Collins, Colorado. With life insurance, you pay a relatively small premium, and the policy pays a big benefit to your loved ones when you die.

The average cost of a 30-year, $250,000 term life policy for a healthy 30-year-old is roughly $528 a year, according to Insurance.com data. 

Sure, the lottery produces a bigger bang for the buck. But the odds for winning big with a lottery ticket are infinitesimal. Your chance of winning the Powerball jackpot: 1 in 292 million.

Permanent life insurance, on the other hand, has a guaranteed payout to your beneficiary. And even term life, which covers you for a certain number of years, has far better odds of paying out than the lottery. 

The chance of dying after age 25 but before retirement age is 1 in 6 for men and 1 in 9 for women, a Milliman Inc. study for the LIFE Foundation found.

"To me, life insurance is the Eighth Wonder of the World," Saulnier says. Besides a policy's leveraging capabilities, the proceeds are generally free from estate and income taxes if the policy is structured right.

Lottery winnings face a healthy bite from the tax man. Some states don't tax lottery proceeds, but the IRS does. Twenty-five percent of lottery winnings are held back for federal taxes.

The get-rich-quick aspects of the lottery are tough to resist, especially as the jackpot grows. On the evening of a big Powerball drawing, for instance, the lottery ticket sales pace reached $36,000 a minute in Texas alone.

Philip LeBlanc, principal of Longfellow Benefits in Boston, recalls working two summers in college as a courier for the Massachusetts lottery some 30 years ago. He picked up and delivered tickets and lottery supplies to convenience stores.

"I used to see people lining up to purchase lottery tickets," he says. "They were allured by the thought of a payday."

Many of them didn't have much of a payday on their own.

"Too many people don't think about defensive financial planning," he says. "They're more interested in offensive planning -- stocks, quick riches and immediate impulse thrills like the Powerball."

Life insurance -- if you have financial dependents -- along with at least three to four months of income in savings, disability income insurance and health insurance are musts for a defensive strategy, he says.

Once a defensive strategy is in place, you can look toward the offense.

"Yeah I had $20 of tickets," Saulnier says of one big Powerball drawing. "I didn't win."