17 April 2012 0 Comments

“Term” Is Not Always The Answer To Life (Insurance)

So far I’ve been extolling the virtues of Term Insurance, but there are many situations where term is not the best answer.  So, now we’ll take a look at Permanent Insurance.

First, I’ll touch on a policy that is labeled as a permanent policy, but in reality operates as term. You might think you are purchasing Term Life Insurance only to receive a policy that is labeled “Universal Life.”  You may have heard Suze Orman, or other financial gurus say that term insurance is the only policy to buy. Don’t panic. Beginning in 2010, many insurance companies with the most competitively priced Term Life polices replaced their term contracts with what they referred to as “Term/UL” (Term/Universal Life) in order to secure more favorable reserving requirements.

For all practical purposes, a Term/UL policy operates just like a Term Life policy. The premium is guaranteed for the duration of whatever term you select. You may not hava conversion priveleges, but since it is a Universal Life chassis, you can continue the policy beyond the original term period by increasing your premium at any time during the level paying period you’ve selected. One possible difference is that you might have a 60-day grace period instead of 30 days. Since the death benefit and premium guarantees operate exactly like those of a traditional Term Life policy, this change in labeling may not have been brought to your attention when you applied for the policy.  Again, don’t panic. You’re probably getting a lower premium than had the issuing company stayed with a traditional Term Life chassis.

Okay, now that we have that out of the way, on to…

Permanent Life Insurance

Permanent Life Insurance, as the name implies, continues for the life of the insured, not just for a term of time; it is Permanent. Permanent Life Insurance generally develops cash values that may be used during the lifetime of the insured, but some of today’s versions may create little or no cash value, concentrating instead on maintaining low premiums. In my very early days of selling I learned a sales pitch that touted the savings aspects of Life Insurance as much as the death benefit. In retrospect what a mistake that is.  After all, the most important feature of life insurance is its ability to instantly create an estate at the exact time it is needed—at the death of the insured. There are many financial resources that will assist you in building an estate:  banks, mutual funds, stocks and bonds.  There is only one that will instantly create an estate:  Life Insurance.

If you’re looking to create an estate at your death, purchase guaranteed death benefits in a Life Insurance policy and manage investments separately. With that said, it is important to be aware of cash values in Permanent policies and how they can uniquely be accessed during your lifetime. So, that’s what I’ll do:  concentrate on death benefit with an awareness of living benefits. There will be an overview of the types of policies available and ten situations definitely calling for Permanent Life Insurance that can’t be solved with Term Insurance.

The types of permanent life insurance policies that I’ll discuss are:

  1. Non-Participating Whole Life
  2. Participating Whole Life
  3. Interest Sensitive Whole Life
  4. Universal Life
  5. Variable Life

Don’t leave me!  As complex and boring as this can be, I’ll do my best to keep it simple and perhaps even interesting…especially when I deal with how these policies might help you with your financial planning.

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