Keeping It Simple
When you boil it down, there are really only two kinds of life insurance policies. One type of life insurance policy offers only temporary coverage is usually sold as Term Life Insurance. The other offers permanent coverage, which is designed to last a lifetime and is typically sold as Whole Life or Universal Life Insurance.
Temporary / Term Life Insurance
Term Life Insurance is available in various different durations, typically 10, 15, 20, 25. 30 or 35 years. Generally, premiums are guaranteed to remain level for the term you select. If one of these durations is long enough for you, and you’re not concerned about outliving the coverage, then term insurance may be perfect for you.
It also happens to be simple and extremely inexpensive. In fact, term rates have fallen considerably since the mid-90s. Pretty much every other product or service you can think of has gotten more expensive.
Bottom line: today, you can buy a lot more coverage for a lot less money. Watch this video to learn more about how to figure out how much life insurance you should buy.
Permanent Life Insurance
Permanent life insurance policies come in many forms, but the two main ones are whole life and universal life. Both types can be designed with level premiums for life.
My father spent 50 years of his life selling life insurance. I’ve been in the industry for over 30 years myself. If I’ve learned anything from my father and my experience, it’s this:
The best type of life insurance to own is the kind that’s in force on the day you die. If your policy isn’t in force on the day you die, you bought the wrong kind. Make sense?
That being said, how can you maximize the likelihood of that happening? For most people, the best way to do it is to own a policy with an affordable, level premium for life.
Now, understand, permanent policies always cost more than temporary (term) insurance. But in most cases, when you do the math, it’s pretty hard to dream up a scenario under which you could live long enough to turn one of these policies into a bad deal.
Let’s look at some real-life examples
A 30-year old man who is a non-smoker in good health may be able to purchase a $500,000 universal life policy with a guaranteed level premium of $2,000 per year. Assuming he lives to age 85, he will make 55 payments of $2,000 for a total of $110,000. When he dies, the beneficiary he chooses will receive $500,000 income tax-free for an overall gain of $390,000.
Let’s imagine the man in this example is 50 years old, still a non-smoker in good health. His $500,000 universal life policy may cost $4,500 a year. Again, assuming he lives until age 85, he will have paid 35 payments totaling $157,500. His beneficiaries will get $342,500 MORE than he spent in premiums. Income tax-free.
What if the man buys his policy at 70? Let’s say his health has declined some, but he’s still in decent health. His annual premiums on his $500,000 universal life policy may come out to $18,000. The policy will still pay out a lot more than he paid in premiums. Fifteen payments of $18,000 equal $270,000. His survivors will receive $230,000 more than the payments that were made to maintain the coverage. Again, income tax-free.
| Age | Annual Premium | Total Premium Cost* | Returns Above Premiums Paid |
| 30 | $2,000 | $110,000 | $390,000 |
| 50 | $4,500 | $157,500 | $342,500 |
| 70 | $18,000 | $270,000 | $230,000 |
*At death, age 85. These are real numbers at today’s rates.
So what’s the lesson?
In case you missed it, there is no one kind of life insurance policy that works best in every situation. It’s important for you to figure out what fits your situation.
Buying life insurance the right way requires a licensed professional. We’d love to help you assess your needs and explore the options to see which kind of policy may be right for you. Call 800-442-9899 and speak with an experienced life insurance professional. The call is free. The advice is free.
It may very well be the most important call you ever make.
