With the introduction several years ago of 30 year term insurance and no lapse guarantee universal life, which is essentially a term for life, some agents have lost sight of the fact that there are legitimate short term needs for life insurance.
It wasn’t that long ago when annual renewable term was a popular product, really the first term life insurance product. When it was first introduced it was actually priced where a person could hold on to it for 20 years and not break the bank even though the price went up a little each year. With the advent of longer guaranteed level premium term policies customers quit using the yearly renewable term for anything but truly short term needs. With the introduction of long term guaranteed level premium policies, annual renewable term was also repriced starting out substantially below the cost of a ten year level term policy but having a cost higher than 10 year term by the 4th or 5th year.
As an example I just ran a 10 year level term on myself at standard rates for $1 million and the best annual premium is $4390 with Lincoln National. Transamerica has a pretty typical 21st century yearly renewable term that starts out for me at $4000 annually. If I needed to cover, say a business note, for a year or two this would be the way to go, but only if you knew you wouldn’t need it beyond that. In year two the premium rises to $4420 and in year three, $4920. The three year average cost for the yearly renewable term is just over $4400 a year. The five year average is $5006 and the ten year average is over $25,000 a year. By the way, AXA Equitable has a 1 year non renewable term product that would only cost $1490 for one year. If you need it again the next year you have to be underwritten again.
My recommendation on short needs for life insurance is usually a 10 year term. The logic is that you can always drop it when you don’t need it, but if you go the YRT route and end up needing it longer than anticipated, it’s a horrible value. If it’s a short term need and your health changes, with YRT you could be stuck paying $25,000 a year where with the 10 year term it is fixed and guaranteed at $4390. Again, you can always drop it without a penalty, but if you guess wrong on the time you end up needing it, you can end up buying the farm for the insurance company.
Travel insurance is another short term need. There are really great travel packages that can be issued for the time you actually need it. A lot of times people will take out ten year term insurance for travel purposes and then drop it when they come home. I most cases it is far more affordable to buy travel insurance and more appropriate too. With travel insurance you can add things like worldwide medical coverage, medical evacuation and repatriation of remains. You can also cover short term risks such as mountain climbing expeditions.
Remember, short term life insurance is less expensive than longer terms. So, ten good reasons for short term life insurance?
2. Short term exposure to a dangerous situation (mountain climbing)
3. Short term exposure to a dangerous event (a motor cycle stunt)
4. A business sale transition
5. Market downturns (cover your loss)
6. Coverage for a short term note
7. Any calculable short need (your child is just starting college and you want extra so they can become a doctor even when your help runs out)
8. When the face amount of the insurance is more important than a long term
9. Bridge coverage while a situation improves (you quit smoking and it is one year until you are considered a non smoker and three years until you can get preferred plus non smoker rates)
10. When it’s all you can afford and you know that something is better than nothing.
Just one thought. If you have a long term need and the premium for a long term works well in your budget, don’t try the cheap route of buying 10 year term policies and replacing them at the end of the term. It doesn’t take much of a health change to make you feel stupid for taking the cheap route.
Bottom line. Not all life insurance needs are permanent and not even all needs are long. There are legitimate short term life insurance needs and why would you pay for more than you need to? If you have questions or need help trying to determine the right product for your need, call or email me directly. Let’s talk.Y