When I talk with clients about the differences in term and permanent life insurance I get a wide array of opinions. While most prefer term coverage because it is much cheaper, others would rather "lock in" on a price with some sort of permanent coverage.
Actually, they can both do well if structured properly, while at the same time, stay in a budget. The biggest problem is that many people don't see the value of their coverage and will drop the policy when financial strains appear. Ironically, this is the worst time to drop a life insurance policy that may only be costing less than $50 month. (Same folks who will insure their phone but not themselves.)
According to Term Life Online, only about 1% of term policies actually pay a death claim. They say that this is because most people outlive their policy or they let it lapse before the term has expired. And many are unaware that there is a provision in most term policies that will allow a conversion to a permanent plan, which is what they will need as they get older.
I once worked with an agent who had been selling life insurance for much longer than I, and he loved to explain that a 10-year term life insurance policy was a "sucker bet". In his estimation, the odds of someone dying in the first 5 years of a policy after a paramed exam were astronomically low, so the person purchasing this policy was really insuring the second 5 years only. Sucker bet.
Of course, there are people who need a 10-year policy. I can say that almost all of these were because they needed to secure a loan of some sort. In that case, it's a great fit. A better strategy for most of us is to find a term that will carry us out as far as possible, or to "ladder" policies. I touched on this concept previously and highly recommend you consider it when structuring your life insurance needs.
Remember that term can be great for your needs during your working years, as you can buy a lot of coverage for not much money, but you may want to look into permanent coverage for those later years, and the sooner you buy it, the less expensive it can be in the long run.
If you have questions or comments, let us know. And in the meantime, please stay healthy and safe!
Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!
