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.

1. 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.
2. 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%.
3.  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.

Lessons Learned:

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!