The quick answer is really nothing other than the length of the guaranteed coverage period. Term life insurance can be guaranteed for as little as 1 year and as many as 30 making it an excellent planning tool for probably 95% or more of all life insurance needs. With younger clients we almost always suggest a 30 year term for the simple reason that, well, when we’re young we really aren’t sure what our long term needs are for life insurance and 30 years is a pretty prudent amount of time to get a handle on that. Coupled with the fact that, especially in your 30’s and 40’s, 30 year term insurance is a great bargain, it just makes sense. We see some hesitation to plan longer because clients believe once they’ve made that decision they are locked in for 30 years, so let’s talk about that.
Just for the sake of an example, let’s use a 30 year old couple. They are planning on children but haven’t had any yet. They both have good jobs that, while they might change, are the kind of jobs that can lead to a career in a certain area. They have a plan even though it’s not yet loaded with a lot of detail. So, as a start toward family coverage for what their plans are right now they each get a $500,000 30 year term life insurance policy. They know this is going to be an affordable building block for the what if’s of their future finances. They also, because they have an agent that is there for the long term, understand that these new policies are locked in and guaranteed by the company, but if things change, they aren’t locked into the policies at all. They can keep the life insurance as is, convert all of part of it to permanent coverage, or replace it with something that better reflects what they believe their future holds at any mid point. They have life insurance locked in to their age 60, but if at age 40 or even over 50, they decide the need more or less, they can still buy a new 20 or 30 year term. If their careers and family really take off they could always convert their original life insurance to a guaranteed universal life for estate purposes and buy more term life insurance for those purposes that have a defined end to them.
So, what is the difference between term life insurance and no lapse guarantee life insurance? No lapse guarantee UL is really nothing more than a longer term insurance or a permanent term life insurance. It can be used to guarantee life insurance for longer period or even permanently at significantly lower prices than the permanent alternatives of whole life insurance, traditional universal life, indexed universal life or variable universal life. While those agents that hang their hat on those other products will claim that they are better because they have cash value, that is only true if your purpose is to buy an investment and not life insurance. There’s no magic to where the cash value comes from. That would be your bank account providing the additional resources to give those products a chance to provide more than just life insurance, but history is littered with the remnants of those types of policies that haven’t worked out and people are left without life insurance and without the money they “invested”. We’re not suggesting some inherent evil in the other products as we’ve seen some cases where they worked out great, but if life insurance is your true need, we are suggesting that you are taking a risk by trying to mix it with other bells and whistles.
If you have questions or have ended up in an expensive life insurance/cash value plan and aren’t sure you made the right decision, call or email. We can help.
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