Long“ TERM” Thinking by Jeffrey M. Orth, CSA, ChFC
There are a number of so-called“ financial experts” that believe that individuals should only buy term insurance instead of permanent insurance. This belief stems from the misguided idea that life insurance should not be used as a cash accumulation vehicle. They recommend that people should buy a cheaper term policy and invest the premium difference in stocks, bonds and / or mutual funds.
There is a fundamental problem with this strategy … the majority of term policies do not result in a paid death claim. The reason is simply that most people out-live their term insurance coverage. These people often enjoy 20 or more years of low cost premiums, but are now facing a choice between no coverage or dramatically higher premiums. Some of these people no longer even have a choice of continuing coverage because of declining health issues that have rendered them uninsurable. What if there was an alternative that was both permanent and low cost? What if this alternative provided level premiums for the life of the contract? Would knowing that your premium was level for the term of the policy, and the fact that the insurance company could never drop you because you have become uninsurable, be of comfort to you?
Well, there are such products available today! Universal life( UL) policies, combined with a no lapse guarantee rider, are offered by number of quality insurance companies today.
A low-cost UL policy with a no-lapse guarantee rider looks a lot like a term policy, but it provides greater benefits than a standard term policy. This is accomplished by paying the minimum premium required to guarantee the death benefit to age 100, or 120 in some cases, resulting in both level premium and death benefits for life. Although there is a minimum amount of accumulated cash value in the policy that will eventually become nothing in later years, the death benefits will be guaranteed without regard to future policy cash value. A UL policy, engineered as previously described, looks a lot like a term
policy. However, this so-called“ life-time term” policy is in fact permanent insurance.
An important benefit to this strategy for life insurance protection is the flexibility commensurate with this type of product. As the years progress, your life’ s goals may change. Years from now you may wish to accumulate cash value in your insurance policy to later supplement your retirement income. With this in mind, you may simply increase your premiums with the intention of accumulating cash on a tax-differed basis that can be taken out income tax-free some time in the future.
If you desire the protection that permanent life insurance provides, while keeping your premiums as low and predictable as possible and maintaining flexibility in the future, it might be a good idea to talk to financial consultant or insurance professional about the value of a term insurance alternative.
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JULY / AUGUST 2007 GILROY TODAY