On a regular basis now, I am contacted by people who own a term life insurance policy that is nearing the end of the guaranteed term, whether that be 15, 20 or 30 years. All of these people have one thing in common. Somewhere between 40 something and 70 something, they are concerned and unsure about what happens when the guaranteed term period ends. Some have put this issue on the back burner, fearing there are no good options. Like so many of these things, reaching out for professional help is a great start. Gaining information and assessing the situation usually provides some much needed comfort and clarity.
Determining how long a policy should last is one of the tough issues we face when buying life insurance. Duration is huge factor in driving the premium of a policy. For many, the duration of coverage may be the most difficult coverage decision. The longer you want your policy to last, the higher the premiums will be. But the sooner you lock in a lifetime rate, the less it will be each year. For those who prefer to minimize and control their costs in the future, making some duration decisions as soon as you can will prove to be wise. Permanent life insurance has a much lower net cost than term.
Since the net cost of permanent coverage is much lower than term insurance, why do so many people stay with term longer than they should?
In a perfect world, everyone would prefer lifetime coverage for the cost of term insurance. When we are young, term is easy on our cash flow and reaching fifty years old seems like a hundred years away. Often, young insurance buyers are told they won’t need life insurance in the future, their kids will be grown, other assets will grow, their spouse won’t need protection when the kids are gone.
The reality is that as we quickly get older, our feelings about life insurance change – ask anyone over 50. In our 30’s and 40’s, we may feel we only need coverage until retirement or when our kids are self-sufficient. We choose term insurance hoping to replace it with a better policy when our cash flow improves, before the policy terms out. Unfortunately, that is not what happens. Fifteen or twenty years flies by, making the flaws of term insurance painfully clear.
It doesn’t last long enough is the the number one problem with term insurance. After the initial term period, the much higher renewal premiums may be unaffordable and catch people off guard. At 55, they may have health issues they did not have at 35. If health has changed, the problems begin to multiply. Older age and less healthy is going to make term coverage look undesirable. This may be the first time you realize that term insurance is not better value. It’s simply less costly in the low risk years.
Fortunately, all life insurance buyers are benefiting from innovation, technology and science. However, the policies you bought years ago are receiving none of these enhancements and improvements. For example, you can now take a big advance against the right policy at no cost. If you have a health emergency, it could be a lifesaver. A policyholder with $2,000,000 of coverage can take a no-cost advance of $1,000,000 from the face amount, under the illness riders; or more. There may be Zero value in the policy but you may still be eligible for an advance of one million dollars.
And, you can now have up to a $5,000,000 policy approved and issued in one phone call, without submitting your doctor records, blood, urine, or a medical exam. The rates for expedited policies are exactly the same as they are for people who are underwritten traditionally.
The improvements in cash value policies are equally remarkable. In the right policy, the insurance company GUARANTEES the cash value is never credited less than Zero. No matter how bad market conditions may, the cash value will never be credited with negative rates. When the markets are up, the cash account will be credited with positive rates. Indexing strategies are transforming life insurance to your advantage.
Give us a call at 561-869-4500 or email TB@LifeCyclePlanners to get started. I offer a complementary conversation about your current life insurance concerns.