The Term Insurance Failure.

“Buy Term and Invest the Rest” – A Failed Theory.

An alarming number of people over age 50 are concerned about a life insurance dilemma facing them today. The level term policies they bought in their 30s and 40s are reaching the end of the term period. They may be expiring even though most people still need and want life insurance protection going forward. If you find yourself in this category, worried about what to do now or worried about good options to obtain competitive life insurance coverage, we can help.

“I won’t need life insurance when I’m older and wealthy” is the biggest lie ever! Here’s the proof: Who buys the BIGGEST Life Insurance policies?? OLD, RICH people!!! Tom Hegna

How Did We Get Here?

This problem is affecting millions of unsuspecting life insurance buyers. Level term products, with long durations, were emerging in the market for the first time in the mid 1990s. The price for term in your 30s and 40s is considerably less than permanent coverage, making it appealing at that time of life. At the same time, many agents in our industry were recommending an untested theory. They suggested that people abandon permanent insurance and buy level term instead. The failed “buy term and invest the rest” asked consumers to invest the difference between the term premiums and permanent premiums in a side fund to be used later. In theory, those accumulated savings would be enough to fund more expensive insurance later in life. But in the overwhelming majority of cases, NO ONE INVESTED THE DIFFERENCE.

“Millions of people were sold a theory, not a strategy. They were told they could outperform insurance companies by investing the difference between the term premium and the higher premium for permanent coverage. That has proven to be a mistake for which today’s life insurance buyers are paying dearly.”

Fast forward 25 years and we have a coverage crisis affecting millions of people who only acted on one part of the “buy term and invest the rest” theory. They bought the term but they did not “invest the rest” every year. Failing to methodically follow the investment part of the plan has left life insurance buyers in jeopardy, for which they are not prepared. When you consider that a high number of agents switch careers, it means that policyholders may be experiencing a false sense of security about what is happening with their term policy. Critical milestones are passing by without awareness and attention. Missing the conversion deadline, for example, severely limits policyholder options.

People in their 30s and 40s were systematically told they wouldn’t need life insurance once their kids were grown or once they reached retirement? Most people past age 50 want protection for life, certainly past the expiration of the initial term policies they bought. By the time they reach their 50s, 60s and 70s, they still want and need a policy, only to find much higher premiums for the new coverage. When you’re older and not as healthy, there are fewer good options and good reason to be concerned about how to secure coverage and contain costs. You’re not alone.

More than 95% of term premiums are wasted – meaning the policies are NOT INFORCE when we reach life expectancy. New policies can be customized to meet your specific needs. They never lapse or they give you the control to lapse when you decide. If managed properly, term policies can be sold in the secondary market too which gives you an opportunity to recover a portion of the premiums you paid.

Newer policies are better because they have:

  1. Ability to draw against the face amount for a health emergency.
  2. Guaranteed premiums for life.
  3. Indexing strategies to safely protect against market losses.
  4. Accelerated underwriting or no doctor visit, lab tests, etc.
  5. Installment option for beneficiaries instead of lump-sum.

Can Individual Investors Beat Insurance Companies?

Insurance companies have some of the best and brightest investment people in the world investing policyholder cash values and creating special strategies. These companies are investing billions of dollars that individual investors simply cannot match. Cash value of life insurance policies grow without taxation inside the policy. I give the investing advantage to insurance companies.

Who Needs Term Insurance?

Many consumers should consider term life insurance. It is appropriate coverage for young people with children who do not have the financial resources to pay for permanent protection. We often recommend that young families blend term and permanent policies to keep costs down. Or, it can be appropriate for short term needs such as bank loans, protecting key people in a business and and divorce agreements.

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Busting the term insurance myths.

Like most people who did not invest the difference every year, they now find themselves in a difficult position. Their term policies are expiring, they are older and their health may be worse. For most people, life insurance is a lifetime need. Ask anyone over 50.

Let us help. The best thing to do at this point is let a professional review your current situation and make recommendations. Simply complete the contact form on this page or any page on our site and we will contact you right away. Or, contact Ted Bernstein directly at Life Cycle Planners or by email to arrange a complimentary consultation. Feel free to call anytime at 561-869-4500.

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The Term Insurance Failure

Buy Term and Invest the Rest – A Failed Theory.

A growing number of life insurance owners are worried that their current TERM LIFE INSURANCE policy is expiring soon and they find themselves without good options for securing new coverage. Many of these people were sold a sales concept known as “buy term and invest the difference“. Instead of purchasing one policy that would last a lifetime, people were encouraged to purchase something like a 20-year term insurance policy and build up a separate savings account, outside the policy. To make this gimmick sound plausible, they were convinced they would not need, or want, life insurance later in life. Once they were near retirement or when their kids were independent, the term insurance was designed to lapse. For millions of Americans, this has proven to be nothing more than a sales pitch with very detrimental planning consequences. Not only are people forced to buy new coverage later in life, there is no side fund that is needed to pay for the new, and more expensive coverage. Adding insult to injury, some people will not qualify for a new policy.

How Did This Happen:

  1. If there were side fund accounts, they did not grow close to 7%, after tax.
  2. Virtually no one “invested the difference” with any type of discipline.
  3. If there were side funds, they were often used for other things.
  4. The conversion deadlines passed in most policies.
  5. Health issues cause renewal premiums to be higher than anticipated.
  6. In divorce situations, the side funds were often divided.

What Happens Now:

  1. Check the conversion language in your existing, inforce term policy.
  2. Determine your insurability for new coverage.
  3. Seek counsel from an experienced life insurance professional.
  4. Consider policies with different duration options.

Life insurance is a lifetime need. Ask anyone over 50 if they feel differently than they did at 35 about their need for lifetime coverage.

Most people are unsure how some health issues might affect the rates for a new policy. A few extra pounds, controlled blood pressure or high cholesterol are common issues after 50. They may increase the premium for a new policy but not as much as you might think!

More than 95% of all term premiums are wasted because they are NOT INFORCE as we get older. If you are currently facing any of these problems with life insurance coverage, contact us to discuss the options. There are solutions but acting now is essential.

Without knowing the future, it is impossible to “predict” when your need for life insurance coverage goes away, if that ever really happens. If you bought term insurance in your 30’s or 40’s, you were likely told that term insurance was the best option. It was inexpensive because the premiums were low and the premiums were low because the chance of dying was remote. If you are currently in your 30s and 40s, now is a great time to consider options that are flexible and customized to meet your goals and objectives.

“Buy term and invest the difference” or “buy term and invest the rest” was a marketing gimmick promoted by non-insurance personalities like Dave Ramsey and Suzy Orman. There were thousands of untrained agents promoting this marketing strategy instead of counseling people about proven solutions and guaranteed outcomes. It has taken 20+ years, but we now have a national crisis in coverage that has not been seen before. A large part of the uninsured class now consists of previously insured people in their 50s, 60s and 70s.

Term insurance may be appropriate coverage for young people with children who may not yet have the financial resources to pay for permanent protection. It makes sense to cover bank loans, key-person life insurance obligations and for divorce agreements.

Busting the myths about term insurance!

Please complete the contact form on this page. Or, contact Ted Bernstein at Life Cycle Planners for a complimentary consultation.

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