As I work with clients to put together the best life insurance plan for their family I frequently run up against kind of a mental block when it comes to term insurance. Some people just have a hard time with the idea that they are buying life insurance that they might outlive.
This is when I explain to them that the question isn’t always how long will you live, but rather how long will I need the amount of insurance I am purchasing right now. For most people, and I’m talking about 90% or more, the need for larger amounts of life insurance simply goes away with time. The reasons we bought it such as children, mortgages and replacement of income are simply not permanent insurance issues and can be quite handily, and less expensively, taken care of with term insurance.
There are plenty of life insurance agents that will try to make you believe that your needs will go on forever leading to the logical conclusion (to them) that you should be buying universal life or whole life insurance. This presents two major problems and probably a lot of smaller ones. First, because permanent insurance is substantially more expensive than term, if you stay within your budget, you will likely end up under insured. I’ve seen couples with 2 or 3 children come away from a whole life insurance agent experience with $100,000 in coverage. When they find out that they can have $500,000 in a long enough term to cover those children until they are grown, for the same price, things start to come into perspective.
On the other end of the spectrum, if that same couple could afford adequate whole life insurance, at the point that the children are grown and gone, they become over insured at a very high price. Are they having fun yet?
Life insurance is an should always be about the need. It shouldn’t be a savings account and you shouldn’t buy it for longer than you need it. And, if the need goes away before you planned, you should consider dropping the insurance early.
Bottom line. Agents who sell whole life insurance have the pitch down. All the reasons that you should pay the big bucks to have the insurance forever. Keep in mind that in most cases purchasing whole life insurance is great financial planning…….for the agent.