Gilroy Today 2007 07 July/Aug - Page 12

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 .