Have you ever heard the expression “death and taxes” being the only two things you can absolutely count on in life? While we are still all on the search for insurance that will help us when it comes to paying for taxes, the only true thing that will make taxes go away is death. The hardest part of life insurance is just having the conversation because it is an uncomfortable one. However, death is inevitable and you can plan for it so why wouldn’t you?
My advice is that everyone should have some form of life insurance. There are plenty of excuses out there as to why some individuals feel they do not need life insurance and I’ve heard them all. They are simply just excuses and there is no other way to categorize them as valid points. The only excuse that is relevant is if you can tell me the exact date you are going to die.
Another piece of advice that I can give is that your life insurance needs will change drastically over the course of your life and your plan should account for that. There is a smart and methodical way to purchase life insurance by using different products and taking advantage of the features and benefits of a life insurance policy.
This blog post is not going to cover the entire topic of life insurance; all I want to explain today is the importance of learning about term life insurance. To keep things simple, let’s recognize that there are two types of life insurance: temporary life insurance (term) and permanent life insurance (whole life, universal life, etc.). We will save permanent life insurance and all the different types that fall into that category for another time and another blog.
Term life insurance is also referred to as temporary insurance because of the way it is designed. A term life insurance policy is designed to last a specific period of time, usually in increments of 5 years. Common term life products will usually offer a 10-year, 15-0year, 20-year, 25-year, or 30-year period of coverage. The word ‘temporary’ comes in to play because at the end of the time period the insurance goes away and you no longer have life insurance, which if you are still living could be a problem. Permanent insurance, however, is designed to last your entire life.
I think the easiest way to help someone understand life insurance is to explain its features through a pro and con list. I’ve always been one of those people that asks for the bad news first in hopes that the good news totally cancels out the bad so, we will start with the cons of term life insurance:
- Temporary – I have used this word a lot, but I cannot stress it enough. You will most likely out- live the term life insurance that you purchased! If you bought a 30-year term policy when you were 30 the insurance is gone once you are 61. Less than 5% of all term policies in the country will actually pay out their death benefit. You are renting when you buy term life insurance.
- Inexpensive – Term life insurance is the less expensive choice of life insurance and therefore can fit better into a budget for a family. The reason it is less expensive than other types are because of the expiration factor I just mentioned. The life insurance company knows that it isn’t going to have to pay a death benefit so, they don’t need to charge you as much.
- Key Benefits in Your Overall Game Plan – Life insurance is designed to cover and pay for needs at the time of death. Some examples are mortgage, college, funeral, inheritance, and income replacement- the list could continue. But, if you can safely assume that you won’t have a mortgage in 25 years or that the kids will definitely be through college in the next 20 years then we plan for that. We can take your overall goal of life insurance, divide things into permanent needs and temporary needs, and then protect them with either permanent or temporary life insurance.
- CONVERTIBLE – Convertibility is once of the best benefits of term life insurance, but what does it mean? Most term life insurance products that are on the market have a convertibility clause written into them, which says at any time you can convert your term policy to a permanent policy without having to go through underwriting again. Let’s look at an example:
- A 28-year-old male finds out that he and his wife are going to have their first child. He knows he should have life insurance so; he takes out a $1 million, 30-year term policy. He decides to go with term because he is not sure how the new budget will work out with the baby. Being in his late twenties, he gets the best underwriting class available and gets the best deal for his life insurance. Fast forward 12 years where he got a promotion, life is awesome, child is healthy, and we then revisit his life insurance. We decide that a policy that ends at age 58 is not ideal for him. We rework our game plan together and decide that maybe $500,000 of this insurance needs to become permanent life insurance. We submit a form and the term insurance is converted without underwriting and he maintains his ultra-select underwriting class.
In conclusion, while term life insurance can leave you with a very dangerous coverage gap later in life, it can also prove to be very useful. It is always better to have a plan and the pros of term life insurance greatly outweigh the cons.
My final piece of advice when shopping for life insurance is to find someone that has been in the industry that you can count on. There are so many well thought out plans that can easily be forgotten about by the client and if the agent has moved on, then so has your plan. At Bridge First Insurance we do annual reviews with all of our customers and not just for life insurance. At the end of the day our ultimate goal is to help you feel comfortable with your plan.
Speak with a Bridge First Insurance Agent today! (571) 249-3857
Previously on the Blog:
Dave has accumulated extensive knowledge of commercial insurance and the skill set that it takes to succeed. In 2013, he and co-founder Jack Cordes, joined forces to establish Bridge First Insurance. Through Bridge First Insurance, Dave utilizes his knowledge and unique expertise to offer clients the best care in insurance.