Sunbeam Tip #4: Why Permanent or Whole Life Insurance is Good
Continuing with the series talking about using the proper financial “Tools” to accomplish our family goals….Today we will be discussing the Great benefits that can be reaped from using a “Whole-Life” product. We will focus on the negatives next week, so for those of you who’d prefer do bash the products under this umbrella….give the rest of us a moment! There are a few names that “Whole-Life” may go as, including “Permanent” or “Ordinary”
Sunbeam Tip #3: Why Term Life Insurance is Bad
Hey! Don’t get me wrong. If you have been following along, I have clearly pointed out several situations where “Term Life Insurance is Good” (see Sunbeam Tip #2). That being said, there are plenty of situations where “Term” is clearly not the right choice. Below are a few of those situations.
- Yes, It is CHEAP! There is are several reasons why it is cheap! Most agents will never tell you that less than 1% of “Term” policies are ever paid a death benefit (1993 study done by Penn State University). Yep, you heard it here first! The study was conducted on only 20,000 policies but it stands to reason that the >1% number would be accurate considering that many term policies are purchased through a group plan at your job. Many times the policy is not transferable, so you lose your job or start a new job, you also lose your coverage. Many others without a group policy, will let their policy lapse, resulting in pure profit for the insurance company after commissions to the broker.
- A term policy is meant to be for a specified period of time. Well, more often than not, you’ll live past that specified period of time. Consider this….if the policy was meant to cover your funeral and burial expenses, and you outlive the policy…..did you really accomplish the goal you set? If this happens, think “Fish Fry or Bake Sale” for your family. If you happen to be in the >1% who “wins” at the life insurance game, the highly rated company will, more times than not, be glad to pay. It is a small price to pay considering they have covered their bet using the other <99%.
- So far, I’ve mentioned how easy a term policy is to obtain. The one caveat I failed to mention is….if you are young! If you are in the final stages of your life or have been diagnosed with an illness that the industry does not take kindly to…..GOOD LUCK! There are ways around everything so let’s just put it this way….your choices diminish and the prices go up as you are aging gracefully.
I’ll say it again, there are many good reasons to buy a Term life insurance policy but it has to be the right “Tool” to accomplish the goals you set forth for your family. If you start a policy, maintain it. If you do choose a term policy, talk with a broker and buy an individual policy. Yes, it will be a little more expensive compared to a group policy but it won’t be capped by your salary, it won’t matter what job you are working or if you are working at all. There is nothing like having a group policy and believing your family is protected then get sick and no longer have the protection because your sick bed won’t fit into your cubical! It’s funny, but Naw, not so much!
Sunbeam Tip #2: Why Term Life Insurance is good.
Last week, we talked about picking the right “Tool” for the the job of protecting your family. This week’s tip focuses on the positives of “Term” life insurance. There are negatives, but we will save that for next week. So here it is:
- It is cheap! There are clear exceptions to how “cheap” it is but, holding everything equal, when compared to a whole life product, Term will always be cheaper, as of the date of quote. Term life is used to cover the need for higher payouts for such things as a mortgage, college tuition for the kids or replacing the income of the deceased.
- Easy to obtain through your employer. If you want a term policy, the cheapest, easiest way to get covered is through your job. Usually capped at a multiple of your salary, getting a group term policy can be as easy as applying a check mark at the time of enrollment into your benefits. There are drawbacks to group coverage but only positives today!
- It lasts for a specific period of time. This last one can be good or bad depending on your situation, there are many instances where you’ll use a cheap term policy to cover a particular situation and you don’t want to be married to the product for the rest of your life. Some of these situations include: Covering the kids until they graduate, business dealings where you need your partner covered for a certain period. Another type of term policy called “Decreasing Term” will cover the mortgage of your home and disappear once you’ve paid off the note.
A term policy, for the most part, is easy to obtain, very low cost and has good versatility for various situations. Term policies should be used when there is a specified period of time under consideration and/or there is a large dollar amount needed at redemption.
Sunbeam Tip #1: Choose the proper financial “Tool” for your situation.
While there are many professionals in our industry, who has an opinion on term vs. whole life insurance, they are two very different financial instruments and used in different ways to accomplish your goals. A master carpenter would not recommend using a saw to put a nail in a board. If he does, find a new carpenter! Any insurance broker worth his salt, would not recommend using a whole life product to pay off your six figure mortgage, should the untimely occur. Nor would the same agent rest your desire to cover your final expenses (funeral & burial costs) in a term life policy.
Sit with your agent/broker and discuss, in detail, what you have going on and what your wishes are for your family, when the time comes. If they are good at what they do, they will marry the right “tool” to the situation. Make certain that you meet with your broker every so often, because your family needs will change as they go through the different stages of life.