It is LIAM, Life Insurance Awareness Month.  And life insurance has gotten a bad rap because of misuse, of not using the right type of coverge.

First let’s talk about efficiency.  If you have a twenty year need (say cover a mortgage, or cover a baby’s college costs), then permanent cash value life insurance is the most cost effective and efficient way to get the death benefit.  Really anything over roughly a decade swings the numbers to favoring permanent coverage as the most cost effective way to get the death benefit that is needed (UMCG has all sorts of research and analysis proving it).  If the need for coverage is under five years then term insurance is the only way to effectively get the coverage, essentially leasing the death benefit because of the short time horizon.  Great for things like covering cost of education for a high school student, or loans for businesses et al.

In the mid range (5-10) years there is no bright line solution as to which is better, and often a small permanent policy with term insurance layered on top is the best way to go as it gives some flexibility and some efficiency, both of which are needed usually.

I HATE seeing people use the wrong setup.  Businesses with strong cash flow buying term insurance are beinig cheap, and penny wise but pound foolish.  It will cost them significant amounts of money: we did an analysis for a client and if they were touse the permanent coverage (easily within their cashflow constraints) it would literally translate into tens of millions of dollars more for them, or about one and a half percentage points PER YEAR increase in the ROR of the company valuation.

And having people with short term needs buy permanent insurance is just greedy on the part of the seller.  And unfortunately it is all too common.

On the other hand, we have a need for death benefit.  If a client (individual or company) has a $2M need, they better buy $2M of coverage.  Even if they have a twenty year need, the primary purpose of insurance is to provide the check if anything happens, and that check has to be big enough so that the family or business is OK.  It disgusted me when young agents were being held up as idols for selling someone a quarter million dollars of permanent coverage on a young parent and then paying the death claim.  That $250,000 wasn’t going to last that family of five young kids very long, nor would it pay for college or keep them in their home.  There should have been at least four times that amount of coverage and it should have been term insurance (primarily) to make sure that the ultimate check was big enough.

Having the right type of insurance coverage is second only to having the right amount.  Having enough is the primary concern, and any agent that sells a permanent policy because it pays them more instead of fulfilling the client’s death benefit need in the appropriate way should be taken out behind the wood shed and beaten.