I started in the life insurance business in 1979, and left it in 1996 to concentrate on my pension business and money management business. Obtained the Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) designations in 3 years. I say that not to toot my horn but to hopefully lend credibility to my advice.
Term insurance was designed for short term needs, and cash value insurance (whole life, universal life) was designed for long term needs. My rule of thumb was that you use term insurance for any need less than 10 years and cash value insurance for longer periods. Most people don't need all of one kind or the other. The old "buy Term invest the difference" rarely works because people don't invest the difference. Most people wait until they need the insurance to buy it and then they usually can't afford what they really need.
The first step in insurance planning is to decide how much you need, how long you need it for, and how much can you afford to spend on insurance premiums. NOTE: Life insurance is NOT an investment no matter what your insurance agent says. It CAN force you to save money and cash value insurance in the long run can be cheaper than Term, but it is still not a great investment.
Once you determine the above, this will dictate your insurance program. Term gets really expensive after the initial guarantee period. I have a client who is converting his 10 year term policy at age 62 because it jumped 10 fold. If you need the insurance coverage beyond its initial guarantee period, you most likely would have been better off in cash value insurance.
Remember, the proper amount of death benefit is your first priority. Also, drop the insurance once you no longer need it.
IDEA: I was single when I bought virtually all the insurance I thought I'd need for the rest of my life. I bought cash value insurance because I knew I'd get married and have kids and would need life insurance a long time. By the time I got married, bought a big house and had kids, my life insurance program could pay for itself for several years when I could least afford it. Once cash flow improved again, I started paying premiums again. In the back of my mind, that cash value was my college education fund if I didn't have other resources to pay for it. By the time my two kids went to college there was enough cash value to pay for all expenses (tuition, books, fees, living expenses, etc.) for one of them. So, I had the insurance I needed plus in a worst case scenario, the cash value could have been used to pay for college. I didn't end up needing it for that, but it was a nice piece of mind. So, now I still have life insurance which I still need/want and I don't have to pay the premiums if I don't want to. So don't turn your nose up to cash value insurance until your really analyze Term vs. Cash Value insurance.
Final note: don't listen to the sales pitches about tax free withdrawals for retirement and the like. Buy insurance because you need insurance and for no other reason.
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06-05-2009, 04:44 PM
