The argument of term versus permanent insurance has raged on since before I first got into the business in 1978. Back then the defining lines between the two were more stark, with the only term product available being a yearly renewable term, a product with a low initial cost that went up every year until it was no longer cost effective.
Today the yearly renewable term policy is largely ignored with the advent of longer term guarantees ranging from 10 to 30 years. The reality is that with the introduction of the universal life with a no lapse guarantee, a cashless UL, term insurance to age 100 is now available, just under another name. At the risk of pointing out that Americans are not at the cutting edge of everything, term to age 100 has been available for some time outside of the US.
So the question of whether term insurance is just a cheap way out for those that want life insurance but don’t want to pay whole life prices, rises to the surface. There’s no doubt the term insurance is less expensive, but the crucial question for both the insured and the agent has to be whether term insurance meets the need.
I’ve maintained, since longer terms became available, that term insurance isn’t just a viable alternative to whole life, but in almost all cases it is the more appropriate product. First let’s dispel with the whole life argument that a policy building cash value is a good thing. I had one whole life agent point out to me that without the cash from his whole life policies, Walt Disney would have never been able to get Disneyland off the ground. Well that was then and term life insurance wasn’t available.
I suspect that Walt Disney today would think long and hard about the lower payments he could make on term insurance and the fact that those lower payments would free up immediate cash versus waiting for his policies to build cash value.
Almost all life insurance needs are temporary whether the whole life companies want to admit that or not. Dependent children, in almost all cases, are only dependent until they reach adulthood. Banks don’t make loans for life, but rather for certain periods. Retirement and the need to replace income don’t last until age 100, but rather come to an end generally in our 60’s and 70’s. Even with retirement age increasing due to economic forces, term insurance guaranteed into your 80’s is available.
Bottom line. Term insurance is not just a cheap way out. It’s the smart choice in almost all cases. On the flip side, I would argue that whole life insurance is the wrong choice in virtually all personal insurance portfolios.