I was following a conversation in another blog a few days ago and one guy’s opinion was that term life insurance isn’t worth the paper it’s written on because, according to him, only 1.7% of term life insurance policies ever pay an actual claim. The insinuation was that term life is a bad idea and somehow rigged to have low claims numbers. There are those, especially amongst agents that sell whole life insurance or indexed or variable universal life insurance, who point to this as “the dirty little secret of term life insurance”.
Look, I’ve hear different numbers from different sources and have no way to dispute any. Suffice it to say that death claim payouts on term life insurance are low, but it is just a fact, not a dirty little secret. It all comes down to what a client believes they are buying when they buy term life insurance. If their thinking is that it will be there forever then they bought term life for the wrong reason. Term, a period of time, is exactly the thought process that any agent and any client ought to be considering when they weigh permanent versus term life insurance.
I’ve been writing this forum for seven years and have to have explained the need and the value of term life insurance several times a year, usually after an attack from some whole life die hard, but let’s do this again. It will be a question debated until the end of time and I stand fast with the fact that 95% of all life insurance needs are term life insurance needs, not permanent. Can the needs be insured both ways? They can, but why would a person pay far more than they need to and have insurance they are still paying far after the need has gone away? And why would a person carry less life insurance than they need, because the cost per thousand is too high on permanent insurance?
The average life insurance client has a need, a new bride, children, a company, a loan, something that drives their desire to have and defines their need for life insurance. To tell someone with a new bride that they are honor bound to carry life insurance for the benefit of their wife for as long as they are married or until death do them part presumes that they will never have any assets, retirement or social security. The problem with that presumption is that a couple that won’t have any assets, retirement or social security, don’t have money to buy permanent life insurance and the best thing they can do is carry as much term insurance as they can for as long as they think they will need it, if they can afford that.
Parents with children aren’t duty bound to carry life insurance until they die for the benefit of the children. I would argue they are responsible for having insurance while their children are growing up, if they can afford it. If it’s a budget squeezer they will do a lot better for their children buying term life insurance rather than permanent. If you are part owner of a company, even if you believe the company will go on forever, the realistic forward looking business plan for most companies is maybe ten years, if that.
Bottom line. I admit there are permanent life insurance needs. I’ve never argued that there aren’t. But for most of us they don’t exist. If you have any questions or want to weigh term versus permanent in your life, call or email me directly. My name is Ed Hinerman. Let’s talk.
Permanent insurance is what conversion options are all about. So sometimes it is better to pay a little more for term insurance that has more desirable conversion options.