American's are living longer and longer. The fastest
growing age group is people over 100 years of age! Almost regardless of
the age that you start, and the life insurance company that you choose, It
costs over $600,000 in premiums to pay for $100,000 of term life insurance to
age 100!
Check it out!
Less than 3% of all term life insurance policies initially sold result in a
death claim - the rest are either lapsed or are converted to a permanent plan
of insurance!
I am, decidedly, not anti-term insurance - about one half of the life
insurance I own is term insurance. Term life insurance is appropriate
when:
1. The insurance will be needed
for a short, known period or term of years ( i.e. for the relatively
short term of a business loan - not the longer period of a home mortage
loan). Caution: continuing circumstances (i.e. new business loans),
changing circumstances, the need for money at death, and/or inflation will
often result in a continuing and permanent life insurance need. In
December, 1997, I helped settle a life insurance claim on a 40 year old $5,000
policy - that was a fairly large life insurance policy in the 1950s, but not
much today.
2. The amount of life insurance needed exceeds
the insured's capacity to pay for coverage that is 100% permanent (my
situation). This is a common circumstance, and a mix of term and
permanent insurance is usually appropriate.
How expensive is permanent cash-value life insurance?
The answer is: far less than term life insurance in the long term.
As an example, on my computer, I looked at a 35 year old male,
non-smoker with $100,000 of permanent life insurance. I assumed that he
paid $1,111 per year for 20 years (to age 55), and then stopped paying
premiums. $1,111 is just a bit over 1% of the insurance amount with the
total premiums of only $22,222 for 20 years. $22,222 is also the same
total cost if he had paid for term insurance for 35 years (to age 70).
At age 100, his cash value and death benefit was almost $450,000! Would
you rather pay over $600,000, and have nothing, or $22,222 and have alot?!
Don't cheat yourself. Life insurance is a financial instrument
that shares a lot of characteristics with money invested in banks, or mutual
funds, or 401(k), etc. That is, the more and the earlier you save, the
better it works.
Beyond that, permanent life insurance has a number of significant tax
advantages over term life insurance. More on this at a later date.
We invite you to call a local Northwestern Michigan Association of Insurance and Financial Advisor
member. He or she can explain these investment and tax
concepts in detail, and specific to your situation.
Jerry Phillips, CFP
Certified Financial Planner
Past President, SCOALU