The old saying that “a bird in the hand is worth two in the bush” is really what I try to drive home about life insurance. Something is always better than nothing when it comes to your beneficiaries.
Let me give you a common example. A person applies for $250,000 worth of term life insurance to cover a mortgage. After underwriting they find out that because their cholesterol is absurdly high, something neither of us knew going in, the cost for that $250,000 is going to be almost twice what we had originally thought.
My advice, if they really need insurance, is to put a shorter term in force or put less insurance in force. Both of those can drive the cost back down to where the client wants it. Once they fix the cholesterol issue, we can reapply for more insurance or a longer term, whatever the original goal was. In the meantime they have coverage.
An amazing number of customers will opt to not accept the policy at all. They will forgo the insurance because they didn’t get what they wanted. What they are saying, and let’s be blunt about this, is that if they can’t have it the way they want it, they would prefer their beneficiary get’s nothing, $0, rather than something.
“But if I lower the coverage it won’t cover the mortgage!” If your spouse has absolutely nothing to work with if you died, they will lose the house. If your spouse has, say, $100,000 (instead of $250,000), they have options. They can use the the smaller death benefit to continue to make mortgage payments until they have another plan in place. They can use it to pay down and refinance to a smaller mortgage. They have options. $0 of life insurance leaves 0 options.
“But I want a 20 year term, not a 10 year term!” If you put a 10 year term in force you may have just done the best thing you can possibly do for the moment. If your health changes and you qualify in a year or two for better rates, you can always reapply and extend the term. If your health goes bad, you have a 10 year term that is convertible at conversion rates that are substantially better than if you had just put it off because you didn’t get approved the way you wanted.
Again guys. Life insurance is not about you!! It is about those you leave behind and for them something will always be better than nothing.
This post is somewhat dated. Life insurance underwriting is changing and evolving continually. For more updated information check out some of the key word links. If you have a specific question or topic you need information for do a search. If you don’t find the answers you need contact me and we’ll make sure you get the information that is important to you.