When The Need Just Doesn’t Go Away!

Term insurance or whole life? Term insurance or universal life? How should you decide just what product best fits your need for protection for your family?

I’ve discussed in numerous posts how to determine the proper term length and the proper use of term insurance. There are plenty of good reasons for permanent insurance. I have beat to death the subject of whole life versus universal life so for the purposes of exploring the uses we will stick today with the generic permanent.

The key element in determining term versus permanent is the length of the need. In the case of permanent insurance, it’s a matter of a need that just doesn’t go away.

That need can take several forms, but let’s start small and work our way through life insurance policies that, by the nature of the need, you simply do not want to outlive. Probably the purest example would be a burial policy, also often called a final expenses policy.

In either of these instances, outliving the policy you’ve been paying for simply doesn’t make sense. It is a permanent need. You need it to be there when you die.

I will use an example from my own portfolio as another need that is clearly permanent. I carry enough term insurance of varying lengths to ensure, at any given point through age 80 or so, there will be enough insurance to take care of my wife’s needs it my absence. I also have a $50,000 permanent policy.

The reason I carry this policy and the reason I believe it should be considered in most situations with husbands and wives, is that I believe it is a smart move to provide your spouse with enough money to bridge the gap between your death and their activation of the plan for the rest of their lives. In my case I believe there will be plenty of assets. What I don’t want my bride to have to do is make any kind of rash decision on how to use them.

Many people carry life insurance policies purely for the purpose of leaving money behind to their adult children. If that is a desire of yours, you should absolutely consider permanent over term. What you don’t want to do is put substantial money into a term life insurance policy for your children, and then outlive the  term. At that point you would have to make a choice of dropping the plan, applying for more term insurance at higher prices (with the chance of outliving it again), or converting it to a permanent policy at a higher rate than you would have had to pay 10 or 20 years earlier.

There are plenty more, but the last example I will throw out is that of estate protection. Whether it is federal estate taxes or state death taxes, someone is going to want a bite out of any substantial estates. Carrying life insurance for the purpose of paying these taxes is a prudent move, but definitely a another example of a policy that you simply don’t want to outlive. Anything short of permanent could potentially cost your estate rather than saving it.

Bottom line. Term insurance fits by far the majority of needs, but there are plenty of good, solid reasons for permanent insurance.