• Lloyd Holloway

The Truth About Term Insurance

Ever wonder why insurance companies advertise their cheap term so much? It probably has to do with the fact that less than 2% of these contracts ever become a claim! That's pretty profitable for the insurance companies I would say.

In fact, while term insurance policies rarely become a claim as far as I can tell, permanent life insurance is the only insurance contract that is guaranteed to become a claim, not home, auto, disability, cancer, or even long-term care insurance can make that claim.

While most term insurance contracts are convertible to some form of permanent insurance many are not and most have time limits and plan limitations for those conversion preveledges.

How long does my term policy allow me to convert? In the old days term insurance was generally convertible throughout the term period but 5 year and 10 year conversion limitations are becoming more and more common on cheap term plans. Which means, even if I have a 30-year term plan I may only be able to convert it within the first 10 years or lose my options.

What type permanent plan can I convert to? More and more the conversions are limited to certain plans within the carrier’s portfolio, usually some form of universal life not whole life.

What’s the cost of Converting? As a planner I love helping people prepare for and enjoy retirement but the entire idea of buying term and converting it late in life is a poor choice.

The cost of converting at an older age can be cost prohibitive especially when our planning goals nearing retirement is to reduce and eliminate debt.

What is the ideal situation? Ideally, we would buy a combination of whole life and term plans early in life so that we could have a paid-up policy at or before retirement meaning there is no longer premiums coming from our retirement budget.

In addition to providing a paid-up death benefit, the plan would also provide an additional source of liquid money for emergencies and opportunities and could even be used for income in years when other assets decline.

Unfortunately, most agents don’t take time to understand permanent insurance and stoop to selling price instead of explaining the real value of owning a permanent plan. While permanent life insurance doesn’t sound nearly as sexy as investing in Crypto. The fact is, permanent life insurance is one of the oldest and most consistent assets that we can own.

I think the enclosed image says it all. When do you think death is most likely to occur in years 1- 30 or in years 31- 45. Permanent insurance is there when the term policy is dead and gone.

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