Life insurance continues to be the most useful and efficient tool in wealth preservation and asset transfer, but with so many different types how do you assist your client when they are trying to make the proper selection of policy type. Over the next 5 blog posts we will examine and identify the different options to assist you in advising your client in making the appropriate decision.
Let’s begin with the easiest decision on life insurance policy types. TERM LIFE
Implementing a Term Life policy is the single easiest step to addressing a need for coverage. Term policies are typically issued for a period of years, 10, 20, 30 years. At the end of the term period: the policy typically terminates, resets the premium at the attained age at the same level of coverage, or resets for the amount of coverage for the same annual premium. Regardless of which result, with term insurance, all of the options on the expiration of the term are generally unacceptable to the client’s needs.
If the decision is made to implement Term insurance there are two important issues that should be addressed in making the appropriate implementation:
The company – if you are implementing a policy < $1 million of coverage or for a short term period of 10 years, buying the lowest cost policy is sensible. If you are looking at a larger contract, let’s say $10m or 20+ years of coverage, the selected company becomes more critical. With 40 years of experience, on these term policies I have seen companies merge as many as 4 times and that is a concern. So for larger and longer term policies, larger companies are wiser, and in my opinion favor a mutual insurance company where it is less likely that your insurer will change over the term period.
Can the policy be converted? – one the very important options that is included in a term policy is the guaranteed right to convert to a permanent policy. With some term policies, generally the less expensive versions, there is a limited conversion period, some as short as 5 years. But there are term policies issued where the guaranteed right to convert lasts for the full policy period. You can convert up until the last day of coverage.
And why is this important?
For example, let’s say you buy a 20 year term policy and you approach the end of the term and you really would like to keep the coverage, BUT, you have developed some health history that puts you in a higher risk class and pushes the premium on a new policy to an un-acceptable cost. The guaranteed ability to convert all, or even a portion of your original coverage without any underwriting, can be of significant value. So in making a decision on term life coverage, make sure you identify how long the conversion guarantee is available. It might be an extra cost, but it is well worth the small additional premium.
Implementing Term insurance is typically a “set it and forget” decision. You buy the coverage, you pay the premium, and you have the coverage. But better than 95% of people live past the term period, which presents a conundrum. The right decision at the start, and then periodic audits as the clients success evolves, is a better formula for a positive outcome from beginning to the end!
If you have a question on Term Life call Steven Shepard at 203-637-6655 or email email@example.com