Term Life Insurance Is NOT Enough
January 8, 2012 by Sheryl J. Moore
In my travels, I have had the opportunity to visit with hundreds of thousands of people that I don’t know in the slightest. In my interactions with these inquisitive strangers, one misconception about life insurance is not only prominent, but particularly disturbing.
TERM LIFE INSURANCE IS NOT ENOUGH!
Although the MIB cites that one-third of all Americans have no life insurance whatsoever, I speculate that there is a shocking percentage of the remaining 66.66% that only have term life insurance.
Let me explain why this is so disturbing.
There are two main types of life insurance: term and permanent.
Permanent life insurance coverage is provided through several types of cash value life insurance plans: whole life, variable life, universal life, indexed universal life, and variable universal life. Not only do these insurance plans build cash values that can be tapped for income, but they also ensure that life insurance coverage continues the duration of the insured person’s lifetime.
Term life insurance coverage, by contrast, only continues for a specific term. Terms may range from one year to 30 years. At the end of the term, some insurance companies give the policyowner the chance to renew the policy for the same term period (i.e. 30 years). Since term life insurance premiums are always based on the insured person’s attained age (or the age at the time of policy issue or renewal), the policy’s premiums will be exponentially higher if renewal of the policy is pursued.
It is also important to note that many insurance companies do not provide the option to renew a term life insurance policy at all. Even those that do will only do so for a limited period. For example, a 25-year-old that purchases a 20-year term life insurance policy will likely be permitted to renew their policy at the end of the initial 20-year term when they are 45-years old. There will be a much higher annual premium and the policy likely will only be renewed for another 20 year period, which will provide coverage through the insured’s age 65. However, the insured person likely will not receive the option to renew for another 20-year term at age 65, as the chances of dying during that term period are too high for the life insurance company to accept such a risk. Often, this is realized far too late for the individual that has no supplementary life insurance; at age 65 many Americans cannot pass life insurance underwriting and are therefore unable to obtain alternative life insurance coverage.
For these reasons, it is important for all persons to have permanent AND term life insurance coverage. Note that since life insurance premiums are typically based on the insured person’s age at the time that the life insurance policy is purchased, it makes sense to purchase life insurance coverage at as young of an age as possible (particularly permanent life insurance coverage). For example, I purchased whole life insurance on all of my children at the time that each of them was born.
How much is enough? It differs based on one’s circumstances. However, life insurance will likely be needed to ensure the following, in the event that one should pass away:
-Continuance of one’s business
-Income replacement for family
-College expenses for children
-Payment of debt obligations
-Burial/cremation fees
-Leaving a legacy for heirs
-More…
What is the best mix of term and permanent coverage? The general rule of thumb is that temporary term life insurance is needed for needs that will only be in existence for a temporary period. For example, a 30-year term policy could be used to cover a mortgage, debts, and childrens’ college expenses. Permanent life insurance is required for those needs that will continue during an individual’s entire lifetime. For example, an indexed life insurance policy could be used to cover one’s business continuation needs, income replacement for their family, burial/cremation fees, and for leaving a legacy to their loved ones.
If you are an insurance agent that doesn’t sell life products, get educated and prepare NOW. You want your clients to come to you for their insurance needs; not some other financial services professional that could “steal” your clients and replace your business. Don’t let your clients wait until they are sick, or on their deathbeds, to pursue the purchase a life insurance policy either. The burden their loved ones face as a result of being so ill-prepared is unimaginable. By expanding your practice and offering life insurance products, you can not only provide another solution for your clients’ insurance needs, but also make more money, receive additional opportunities for cross-selling, and earn more referral business! Happy selling! sjm
