No One Ever Died With Too Much Money

Statistics say that 15 percent of husbands and 28 percent of wives have no life insurance.  I tend to believe that this is so because  we believe that insurance is complicated.  Let me help and shed a little light on the topic.

In the world there are only two kinds of life insurance.  I'm sure you have heard many different names, 10-year term, 30-year term, whole life, graded premium life, decreasing term, universal life, etc., etc., etc.  Every company has its own names and its own variations.  But know this; there are only two kinds of life insurance - term and permanent.  Each of these products has four unique characteristics.  As I explain these characteristics, I want you to consider an analogy.  Think of term insurance like renting a home and permanent insurance like buying a home.  As we go through, I think you'll find amazing similarities.



Let's start with term insurance.

• The first characteristic of term insurance is that it is low cost - initially... just like renting a home is cheaper than buying a home.  Right?
• The second characteristic of term insurance, however, is that the premium goes up over time.  Each term policy is a little different, but at some point the premium will go up, just like rent on a home.  You may have signed a five year lease with no increase in rents, but when the lease is done, the rent goes up.
• The third characterist of term is that it has no equity.  Think about it.  If you rented a home for ten years and then decided to move, how much of your rent payments would the landlord give back to you?  None, except maybe a small damage deposit.  All the money you paid over the years did one thing: it provided a place for you to live.
• The fourth characteristic of term insurance, and the one I consider the most significant, is that at some point in the future, even if you are still alive, the coverage will end.  For some policies it is age 80, 85, or 90.  For many, it is a specified period of time, like at the end of ten or twenty years.  But regardless of how long it runs, one thing is true - at least with every term policy I have ever seen - it has a drop dead point, even if you are still alive. 

Think about it, when do people need life insurance, at least the death benefit feature?  The answer is simple - when they die.  And when do most individuals die?  The majority die when they are much older.  Therefore, these term policies terminate right when they are most needed.  Unfortunately, since most term policies get so expensive in the later years of life, most have been dropped long before they have run their course,  So all the money (just like rent) has been thrown to the wind.


Now let's look at permanent insurance.

• The first characteristic of permanent insurance is that it has a higher cost - initially.  Just like it is generally more expensive to buy a home then it is to rent a home.
• Secondly, however, the premium stays level.  It's designed not to go up in the later years.  Think about your home mortgage.  If you were to take out a traditional thirty-year fixed mortgage, how much will your payment go up during those thirty years?  Zero.  Your 360th payment is the same as your first, at least as far as principle and interest is concerned.
• The third feature of permanent insurance is that it builds equity, just like owning  a home.  If you lived in your home for twenty years and then sold it, you would probably get back every dollar you paid for it and likely a lot more.  The same is true with permanent insurance.
• The fourth and final feature of permanent insurance is that the coverage doesn't end, as log as you pay the proper premium.  With most quality permanent insurance there is a not a predetermined date in the future where the coverage ceases to exist.  It is designed to be there when you need it - hopefully much later in life.

I'm sure it appears that I hold a  bias toward permanent insurance, and I don't mind telling you - I do.  However, I provide both kinds of insurance to my clients in equal proportion, because the one feature that both term and permanent similarly provide is a place to live - the death benefit.  The most important issue in the life insurance discussion is the proper amount of coverage.  If the amount of insurance that is needed can only be afforded through term insurance, then term it is.

However, if a person can afford the monthly premium for permanent insurance , then just like being able to buy a home, permanent life insurance is by far the preferred option.

If you have questions about life insurance, your own policy, or if you need life insurance... We can help.

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