April 20, 2018

What Type of Insurance Do I Need?

By now you should have read through the products section of this website. You should have a pretty good idea of the advantages and disadvantages of term life insurance and whole life insurance. But it may still not be clear which one is the best for you. This may be because it is difficult to see the two scenarios in “action”. In the life insurance industry this is called an illustration. An illustration plays out any scenario that you would like to see and shows you the results. To get an illustration and run through some possible life insurance scenarios you will need to contact an agent. We utilize the most sophisticated software program in the life insurance industry to give you any type of illustration that you can come up with including the ones listed below. We can meet with you in person or run illustrations on our computer and email a PDF version to you.

  • Basic Life Insurance Needs
  • Business Valuation
  • Combination Needs
  • Disability Income
  • Education Funding
  • Estate Liquidity
  • Financial Inventory
  • Key Person Valuation
  • Long-Term Care
  • Mortgage Analysis
  • Pension Maximization
  • Primary Needs
  • Retirement Income
  • Survivor Needs
  • Wealth Accumulation

As you might expect, permanent life insurance premiums are more expensive than term premiums because some of the money is put into a savings program. The longer the policy has been in force, the higher the cash value, because more money has been paid in and the cash value has earned interest, dividends or both.

The debate is all about that cash value. If you buy a policy today, your first annual premium is likely to be much higher for a permanent life policy than for term.

However, the premiums for permanent life stay the same over the years, while the premiums for term life increase. That extra premium paid in the early years of the permanent policy gets invested and grows, minus the amount your agent takes as a sales commission. The gain is tax-deferred if the policy is cashed in during your life. (If you die, the proceeds are usually tax-free to your beneficiary.)

The saying you always hear is, “Buy term and invest the difference.” The fact is, it depends on how long you keep your policy. If you keep the permanent life policy long enough (and the market ever rebounds), that’s the best deal. But “long enough” varies, depending on your age, health, insurance company, the typesof policies chosen, interest and dividend rates, and more. The reality is that there is not a simple answer, because life insurance is not a simple product.

Even with all of these variables, there are some guidelines you can follow. The key is how long you plan to keep the policy. If the answer is less than 10 years, term is clearly the solution.

If it is more than 20 years, permanent life is probably the way to go. The big gray area is in between. Here is where you need an expert to run the term vs. permanent analysis for you. (See “When it pays to consult an insurance pro.”) Of course, this assumes you keep the policy in force. Most people drop their policies within the first 10 years, but if you do your homework now, that shouldn’t be the case for you.