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One of the most common questions I'm asked by prospective clients is what kind of life insurance I would recommend for them. The answer is deceptively simple:
 The kind that's inforce when your beneficiaries need the money.
Deceptively simple.
Yet there's some complexity underlying this simple answer. Nobody knows how much time they have left. While we can determine mathematically the exact need for life insurance protection one needs today, anything we project into the future will almost certainly be incorrect. The need in the future may be higher, or it may be lower, although real life experience indicates that the needs in the future are invariably higher than they are today for all but the impoverished. I've yet to meet a life insurance beneficiary that received too much money from a life insurance policy when they've lost a loved one.
Many under-qualified authors, insurance critics, and lay journalists give knee-jerk answers to this simple question, such as "Always buy term insurance" with little or no explanation.
Without getting off track into the false choice between term life insurance and the various forms of permanent life insurance, let's focus on the knee-jerk answer, which begs the question: "What kind of term life insurance should you own?"
There are many choices, some obvious, some not so much.
Obvious choices:
- Annual Renewable Term, sometimes called One Year Term
- 5 Year Level Term
- 10 Year Level Term
- 15 Year Level Term
- 20 Year Level Term
- 25 Year Level Term
- 30 Year Level Term
- 35 Year Level Term
- 40 Year Level Term
- Level Term to Age 80
- Level Term to Age 85
- Level Term to Age 90
- Level Term to Age 95
- Level Term to Age 100
- Level Term to Age 105
- Lifetime Level Term
Some less obvious choices:
- Age Next Birthday vs. Age Last Birthday
- Guaranteed Premiums vs. Indeterminant Premiums
- Convertible Term vs. Non-Convertible Term
- Conversion Period - Limited vs. Unlimited
- Conversion Option - Partial vs. Total
- Conversion Portfolio - Special vs. Limited vs. Unlimited
- Conversion Credits vs. No Conversion Credits
- Waiver of Premium - Regular Occupation vs. Own Occupation
- Accelerated Benefits for Critical Illness
- Accelerated Benefits for Chronic Illness
- Accelerated Benefits for Terminal Illness
- Accelerated Benefits for Critical Injury
- Crisis Waivers - Unemployment, Loss of Primary Residence, Critical Illness, Chronic Illness, Terminal Illness
- Underwriting - Medical vs. Non-Medical, Simplified Issue vs. Full Underwriting
- Modal Premium Surcharges - How much more a company charges when you pay monthly, quarterly, or semi-annual
- Participating vs. Non-Participating
- Financial Stability of the Life Insurance Company
- Ratings of the Life Insurance Company
- Quality of Customer Service
When you add the various contractual differences and riders - these less obvious choices - to the many types of term life insurance policies, the decision isn't as simple as the pundits wish. Life insurance is not a commodity. Even fundamental coverage like term life insurance is not a commodity. There are differences other than the premium. That's why most of the under-qualified (and un-licensed) authors, journalists, and critics try to dumb down the question to a one-size-fits-all answer that rarely gets the job done. In a perfect world, these charlatans would be held liable for giving out insurance advice without a full set of facts that a professional life insurance agent endeavors to obtain.
As you can see, there are more choices than meets the eye just with basic term life insurance, and we haven't even mentioned any of the various types of permanent life insurance. This is why a prudent person seeks the counsel of a life insurance specialist.
For years, I've asked judges and probate attorneys if they know of a widow or widower, or guardian of a minor child, that complained about receiving too much money from life insurance when a breadwinner's estate is probated. I have not found a case yet.
What this means to you is that nobody ever has too much life insurance. They may be paying premiums that are too high, but since life insurance companies avoid moral hazards -- such as having too much life insurance walking in one pair of shoes -- it's exceedingly rare for anyone to be over-insured. One of the only times we find that someone has too much life insurance, it's because sickness or injury prevents them from working, and they struggle to pay their premiums. What's worse is that if they let their coverage lapse during a period of disability, they may never qualify for new coverage again. This is why having life insurance that stays inforce when one is too sick or hurt to work is vital.
Since it's so rare that anyone has too much life insurance, when we peel back the onion, the question about "What kind of life insurance?" really means "How can I get the best value for my dollar?"
Please note that I did not say "How to get the cheapest policy?" This is where the answer to "What kind of life insurance?" becomes complex because life insurance is like a parachute. If you don't have a parachute on when you need it, you won't ever need it again. The same goes for life insurance. There are no do-overs allowed here; No second chances.
A prudent person should be wary of "cheap" parachutes. Likewise, a prudent person should be wary of "cheap" life insurance.
This is what a professional life insurance agent does: Help a client get the best value for their premium dollar, by matching the type of life insurance policy with the need.
Do you have a professional life insurance agent? I'd like to apply for the job. Call today (800) 680-5596 or complete the form below:
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