Term life insurance vs whole life? Term life insurance vs universal life? Term life insurance vs indexed or variable universal life? Term life insurance vs other term life? The life insurance industry has made much of these questions over the years and two things are true, 1. The answer means a lot to the customer and 2. The answer often means a lot to a life insurance agent’s bottom line, commission. So, even though I’m a life insurance agent, let’s just tell it like it is. #2 doesn’t mean anything. An agent should never go into a sale looking at how much money they can get out of it.
So, where is the most money for a life insurance? Term life insurance pays well for the first year and then nothing after that, and term life insurance tends to have substantially lower premiums so the commission is smaller. The permanent life insurance crowd, whole life, UL’s and IUL’s and VUL’s and generally high ticket items compared to the same amount of term life insurance and they pay well in the first year also. But the kicker is the permanent products, for the agent, are the gift that keeps on giving. Permanent life insurance pays renewals up through the 10th year of the policy, so not only does an agent make more up from than on term life insurance, but the keep getting money for quite a while. Incentive to sell permanent over term life insurance? The simple answer is yes.
So back to the age old question, term versus permanent? But let’s take the customers side in this question. Remember that one side of the equation is how much someone can make from the transaction and the other side is about meeting their need affordably. I’ve said before that I believe almost all needs for life insurance, other than estate purposes and final expense policies, are term life needs. Consider the normal needs for life insurance and how long they generally last. The big one is children and while we hope our children last forever, our need to carry life insurance, other than a special needs child, ends when they leave home or at most when they are out of college. A policy to cover a home loan is one of the most frequent uses, but that comes to an end also. There isn’t any need to have permanent insurance for either of those. How about income replacement during your working years? Again, it may not be a bad idea to carry something up to age 70 or 75 now that a lot of us are working longer, but no one is working until age 100 or after so there is no permanent need.
One last thought, an old school piece of the industry but still used today. Life insurance agents will talk to your about the huge cash advantage and, no really, the prestige of owning high dollar permanent life insurance. Run from an agent that goes in either of those directions. They don’t have your best interests anywhere in their mind.
Bottom line. For customers and life insurance agents, someone needs to make a decision. Is it about the agents income or your family and budget? If you have questions or feel you were sold a permanent product, especially IUL, call or email me directly. My name is Ed Hinerman. Let’s talk.