Term Life Insurance - Behind the Scenes

'All or nothing' has no place in financial planning.

Listening to the media people and taxi drivers can weaken the foundation for your financial future. Find a trusted adviser and learn from them. Check the qualifications of your sources of information. Well meaning friends and relatives are frequently a better source of myths than they are of facts.

Is term life insurance a better by than whole life, or is that a myth? Unfortunately TV personalities that present themselves as financial experts may not even have a license to give such advice. Recently I heard one (so called financial expert) say "...I HAAAATE (hate) whole life and universal life insurance..." To me such an emphasis on the 'hate' shows that this person doesn't have an open mind. They won't allow themselves to learn the truth because their mind is already made up. This financial guru's attitude is similar to any other prejudice.

Building Your Life Insurance Team

To build a team we must become aware of the strengths and weaknesses of each player. What would it serve a baseball team to position a catcher on the pitching mound? In order to be a winner you need to explore which type(s) insurance will serve your financial needs in the most efficient way. The best place to begin is to learn the proper position for various types of life insurance. Term Life versus Whole Life shouldn't be your concern. The question should be: How can term and whole life work together to save you the most money? Here is a simple way to determine which type to put in place in your plan.

If you won't need life insurance beyond twenty years - buy term. Usually the best prices for term are for ten and twenty year terms. There are other terms being sold but these have the most companies competing for your business. If you only need life insurance for five years it may be a better deal to buy ten year term and cancel it when it is no longer needed. Five year term is frequently more expensive to buy than ten year term. Most companies have discontinued their five year term plans for that reason.

Should you will need the insurance longer than twenty years consider whole life. Whole life will cost you less than term when you look beyond twenty years. There are several choices available after you own whole life for a number of years. You may be able to stop paying for it and still keep it in force in your old age. You can cancel it and get most of your money back, sometime you could even get more back than you paid in. There may be a life long need top pay final expenses or estate taxes.

You'll save the most money by combining these types insurance into one policy. Frequently you can buy a whole life policy for life long needs and add twenty year term for needs that will last about twenty years. You can also add a ten year term for needs that will be out of the picture in the next decade. For example you may only need $100,000 for life, but if you have a young family that will need much more insurance to provide income for 15 or 20 years. Perhaps you have a mortgage that will be partially paid down in ten years and the children will be older then also. You might set up the term riders as $500,000 ten years and $500,000 for twenty years. This way you get cheaper term life insurance as there will not be a policy fee on the term parts of your policy. The twenty year term will insulate you from the increase in premiums you would have experienced in year eleven if it had all been ten year term.

Check out these savings. Compare these actual rates. One man saved about 2/3 of his initial premium by buying term at $278 a year instead of spending $867 for whole life. However, when you consider the increasing cost of the term at each renewal he actually would pay $57,610 more for his term life. here is how it works:

A 40 year old man could buy 100,000 twenty five year term for $278 a year. At age 65 he discovers he still needs insurance so he buys a whole life plan at $3,400 a year for life By age 65 he paid $6,950 If he lives to age 85 he will pay another $68,000. His total cost is about $74,950. Insurance companies have got to love this guy!

That same 40 year old man could buy 100,000 whole life (paid up in 20 years) for $867 a year and he still has $100,000 to age 100 and beyond. Total cost for life $867 X 20 =$17,340. He saves $57,610! WOW!!

An experienced adviser can help. Make sure they have a license to sell life insurance. Agents don't just buy a license to sell life insurance they must study first. These are not snap courses. Many people have to rewrite the exams to qualify. Your licensed life insurance agent is a well educated professional. We'll continue to uncover other 'hidden weaknesses' behind the scenes as we journey through these articles.

Gordon Hughes, Enhanced Lifestyle Planner and Certified Financial Planner. Gordon has over 30 years experience in banking and financial services industry. He shares his awareness of behind the scenes practices that work to the advantage of banks, insurance companies and investment houses, but seldom benefit consumers.

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