Permanent life insurance provides much better value when you compare its net cost to the net cost of term insurance. For this reason, switching out of term and into permanent coverage is an important step to take in your overall financial planning.
The cost for permanent coverage is initially more than term insurance. It is this fact that opens the door for people to draw the wrong conclusions about permanent life insurance. By far, permanent insurance is better value when you can afford the higher premiums.
Term life insurance is like rent and musical chairs. The money you spend on rent each month is gone and you have no permanency or security. Term premiums will increase in cost every time you need to renew, if you can renew. Like musical chairs, at some point the term expires and you can find yourself without coverage when you need it most. Either your health changes or term is unavailable as you approach life expectancy.
People buy permanent life insurance only when its value has been properly presented. “But Dave Ramsey and Suze Orman don’t like permanent life insurance”. That is true, they don’t. Even though neither are insurance professionals, neither one counsels individuals and their “advice” is soundbyte advice. Why do you suppose that neither one ever accepts debate invitations against insurance professionals? It would make for good TV and Radio, right? But they won’t. Their job is to sell ads and one way to do that is by making indefensible claims about popular products.
I agree with them about one thing. Permanent insurance is not for everyone. Many life insurance buyers simply did not have sufficient income at the time for anything but term insurance. They made the right decision to secure the coverage. Buying life insurance is a building process.
When people with families move from a “paycheck to paycheck” lifestyle to making purchases based on value, they move into the category of potential permanent life insurance buyers. Since ninety seven percent of ALL term policies are dropped before paying a claim, then 97 percent of ALL term premium are wasted. High Net Worth (HNW) consumers choose permanent life insurance for many different reasons:
Income Replacement: If your family or business depends on your income, regardless of your age, life insurance guarantees no family disruption due to loss of income.
Immediate Liquidity: Very wealthy people own life insurance. They want GUARANTEED LIQUIDITY at death and they purchase only permanent insurance because it’s guaranteed for life.
- The value of their assets can fluctuate significantly.
- Many people have children working in a family business. Life insurance is the great equalizer for those children who do not work in the business. Without liquidity in these cases, there is great risk to a smooth succession of the business.
- Many clients own a life insurance policy for each of their grandchildren. The insurance policy is straightforward, inexpensive and a “feel good” asset knowing how it will impact each grandchild.
- Premium Financing. Wealthy people have the ability to finance life insurance. When it makes sense, it is a very effective tool to create tax free wealth.
From a professional’s perspective, wealthy people own life insurance to support their succession plans. In these cases, assets may be comprised of real estate, businesses and other non-liquid assets. There is nothing like the immediate, tax free liquidity that life insurance provides. It gives the family and their advisors time to properly execute the plan. Too many times, without sufficient liquidity, anxiety creeps in and family members get nervous. This can lead to litigation, confusion and disruption.
If you wish for your heirs to remain close after your death, make sure there is sufficient life insurance in your plan. My experience suggests there is will be great appreciation for your decision to provide this liquidity. It may be a cliche, but I have never heard of a beneficiary or trustee complain about receiving millions of dollars of life insurance proceeds.
Please contact me at 561-869-4500 or email me at TB@LifeCyclePlanners.com about a complimentary consultation including a review of your inforce coverage.
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Also published on Medium.