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Tag: term insurance

Quick: what is your life expectancy?

Do you know?  Click here for a check as to your life expectancy based on your individual habits and family history, which will be different from the normal actuarial tables.

As you can see, if you take care of yourself (don’t smoke, aren’t overweight, eat a semi-intelligent diet, etc) you will live past 80 according to the government.  And we all know that SSA uses these tables to calculate the cost of benefits to the government, and the government never assumes low on the actual cost of stuff do they?  And there may be one or two medical advances in the pipe that could let you live longer.

So if you believe in numbers, it is pretty obvious that that term insurance you are considering buying will probably disappear before you do.  So should you not buy it?

FAIL!  WRONG ANSWER!  Buy the term insurance, because you need the coverage to make sure that your goals and dreams come true in case you shuffle off this mortal coil.

But…..

You might want some permanent coverage as part of your insurance program, as the probability is that you WON’T die before the term expires and as such should have some of the whole life coverage that will be there for your whole life.  Over a period of several decades it is actually much more cost effective than the term insurance too, so is a smart move.  The numbers bear it out: over an extended period, permanent insurance is the most cost effective way to own your insurance.

So look at the math people before you make your decision on life insurance: it might take several decades, but eventually you will see what is the best deal.

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.