I field a high number of calls asking about whether people should buy term insurance, universal life or whole life, and in some cases they will have heard of, and ask about return of premium term insurance.
Now is not the time to hold back my feelings on this, so I am going to lay out the arguments I hear for not buying term and then you get to find out how I really feel.
1. But if I buy term and don’t die I will have wasted all that money…..
2. I want something that builds cash value so I can borrow against it……
3. What if I get to the end of my term and still need insurance……
I’m just going to address these questions in the most common scenario. Husband and father providing life insurance for the benefit of wife and children. For the average person in this scenario, your life insurance needs are not permanent. If you are in your 30’s or 40’s, married with children, most of your needs for life insurance will be gone by the time you are 65 or 70. Before you scream, I did say most, not all.
Unless you have a child that will be dependent on you for life due to a physical or mental disability, you have absolutely no obligation to carry life insurance for them past the point where they go out on their own. “But I’d like to leave them something!” Good! When they leave home, drop the insurance and start contributing to a retirement fund for them. In fact, if you bought term insurance rather than the other types you would have had enough money left over to be putting money away for them all along.
Sorry, I got emotionally off track. Wasted all that money?? You protected your family against disaster for all those years and that was a waste of money? You did it as inexpensively as it can be done and it was a waste? Try this for an exercise. Get gut honest with yourself and write down what you spend in a month that is just “blow money”. Money you spent that didn’t do anything but satisfy your desire at the moment. Beer, cigarettes, satellite TV, pay TV, new clothes when you have plenty already, sodas, snacks, eating out rather than cooking meals. Add all that up for a month and in most cases it will come to more than it would cost to very adequately insure yourself with a 30 or 35 year term policy.
But you say you don’t want to give all that stuff up? Do you get your money back when you’re through blowing it? Did it protect your family?
You want to buy whole life insurance so you can borrow against the cash value. Just two quick points. The cash value comes from you. Whole life is not a magic money machine. And, you have to pay it back or your policy will either collapse or the death benefit will be smaller than you intended. Ok, three points. You can’t afford to adequately insure yourself with whole life insurance. So, you want to put your family at risk by underinsuring so that you can borrow against the policy and possibly make the death benefit even smaller or nothing at all?
If you get to the end of your term and still need insurance, it will likely be a small amount having outlived children, jobs and mortgages. Once you are past the big three of life insurance needs, a small universal life policy should suffice, and you can convert that from your term policy without evidence of insurability.
Bottom line. Talk it through. Think it through. Don’t throw money away.