I know that the permanent life insurance guys would like you to believe that your need for life insurance might grow as you age or at least stay the same, but the facts of life really point in the opposite direction. Life insurance needs generally become smaller as you reach age 50, then age 60 and age 70. If that wasn’t true, gosh, AARP would be selling giant life insurance policies or at least what they jokingly refer to as life insurance policies. The $500,000 or $1 million of life insurance you needed when your children were growing up should, unless I’m missing some hidden formula, get lower when they leave and start their own lives. While there’s no doubt children might want us to carry $ bazillions until we die to make up for the pathetic left overs of our lives, that would be their need and not ours.
There is an assumption in permanent life insurance sales that the amount of coverage you are carrying will never be offset by assets. Unfortunately with the leadership our country hasn’t had for the last 15 years for too many that is true, but the loss of the American dream, especially the retirement part, isn’t all the fault of government. So I don’t range too far and wide with this, let me just put this idea on the door step where it belongs. Life insurance agents who talk their clients into paying 5 to 10 times more than they need to for temporary insurance needs are month by month keeping money out of the asset growing stream of cash. But, they say, whole life and a rare universal life policy build cash value. That’s true, BUT, when a family is constantly straining their budget something is going to give and I would suggest that permanent policies with cash value are one of the first blocks to crumble when cash gets short. Sure they can borrow and pay it back and no harm, no foul, but that isn’t what happens. Cash value policies are surrendered and the cash taken out because these people aren’t looking to create more debt. So they have a portion of the cash that they should have had if they hadn’t been overpaying for life insurance, and now they don’t have life insurance either.
So let’s talk reality. This may not be the truth for every person in every situation, but for the vast majority the reality is that term life insurance works and keeps money in the bank accounts of those who want to acquire and grow assets.
1. When we get over the shock of being age 50 we can look around and see that there is some good news that comes with the event, one being that our life insurance need should be less than it was 10 years earlier. I took raising children very seriously and if I died prematurely I wasn’t about to leave my bride struggling financially to finish raising our children. I carried sufficient term life insurance, a 20 year term for $500,000, that all the possibilities were on the table for my wife and children. I bought it at an age when it didn’t stress my budget which was important since I was self employed and at the mercy of income that had ups and downs. I had 4 years left on that policy when it became obvious that, even though they would like to have been, our children were no longer dependent on us. I converted $50,000 to permanent insurance and am letting the term run out. That will be at age 66.
2. In addition to the $500,000 I also have a $1 million life insurance policy that was for business purposes. At the time I took it out I had several employees and a succession plan that included a nephew taking over the business if I died. My nephew has gone a different direction and I only have one employee now, but my income has grown significantly. Even though the business situation has changed, at age 61 the life insurance policy now serves as income protection. It’s a 20 year term life insurance policy that will run to my age 75.
3. I have $300,000 of 30 year term that will run to my age 82. My plan for that life insurance policy was just to have some significant coverage in force when I finally quit working that would last long enough for our assets to mature and for us to settle into our new lifestyle as old folks. Once that term policy runs out we will have assets and the $50,000 permanent life insurance policy, actually one on both my bride and I, that will just be a little cash for transition.
Bottom line. I don’t think our family is all that different from the average family. If you have a plan and plug in term life insurance policies to support that plan, it can all be done at a fraction of the cost of cash value life insurance and accomplish what really needs to be taken care, needs. If you have questions or would like to look at what a comprehensive life insurance plan would look like for all of your life insurance needs, call or email me directly. My name is Ed Hinerman. Let’s talk.