7 February 2014 0 Comments

Building What You Need

Blog Photo 203You’ve got it all figured out.  You’ve been reading my blogs and want the maximum amount of term insurance you can afford to protect your family.  You know that the longer the duration of the term, the higher the premium.  You also know that life insurance’s main goal is to replace income lost to your family if you die prematurely.  So, the longer you live, the less insurance you need.

With this knowledge, at age 35 and in perfect health, you set out to build the perfect life insurance program.  Your three kids range from age 7 to 12, so here’s how much life insurance you want to provide.  Here’s the amount you’ve decided on:

Your Age                                 Amount of Insurance

35-45                                                   $500,000
45-50                                                   $400,000
50-55                                                   $250,000
66-65                                                   $100,000
65+                                                      Not sure.

You work with an independent agent who finds 10, 15, 20 and 30 year term policies to provide exactly the amount of coverage you want.  The agent tells you to get the absolutely lowest premiums he’ll use four different insurance companies.  He’s come in with a beginning annual premium of only $486 that will reduce at the end of the 10th, 15th and 20th years as the amount of insurance reduces.  The last $100,000 of 30 year term is convertible, so you will decide before the end of 30 years whether you want to continue it beyond your age 65.  You’ll never have to take a new physical exam to exchange for a $100,000 policy that will continue for your lifetime.

You are about to proceed, when another agent says—Wait!  She can get you the same coverage for only $327 per year.  How can that be?  That’s a 33% savings!  This agent knows that by using 4 insurance companies, there are 4 policy fees.  The policy fee is part of the premium that remains constant no matter what amount of insurance is being issued.  She is smart enough to know of at least one company that will issue each term duration as a rider on a single policy as opposed to issuing separate policies.  This saves 3 policy fees.

Policy fees are usually at least $50 per year, so they can have a major effect on the premium-per-thousand, especially for small amounts of insurance.  The lesson:  build the protection you need with as few policies as possible.

Coming up…what to do about that Universal Life Policy that is about to implode.

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