Why Buy Permanent Life Insurance?

Why Buy Permanent Life Insurance?

Why should you buy permanent life insurance?

Planning is important.

Planning is important.

This is one question that we are asked quite often.  There are several very good reasons which we will review briefly in this article, but the best one is that permanent life insurance will last for the rest of your life regardless of your health status.  Once you purchase a permanent life insurance policy and the two year incontestability period expires[1], the underwriting company cannot cancel your death benefit ever.   Obviously, the caveat is if you stop paying your premiums.  It is unfortunate that the vast majority of people limit their purchase of life insurance to either one form or the other.  They either purchase term or permanent and never think about the coverage again.  What makes things worse is that there is an enormous number of “financial planners” out there who are promoting to everyone, regardless of income and assets, “buy term and invest the difference”.  For many people who are undisciplined when it comes to saving money, this quickly becomes a failed retirement strategy.   Moreover, this strategy guarantees the client will never have permanent life insurance in their portfolio.  This is interesting since only 1.8% of all term life insurance death claims are paid out.  Insureds almost without exception overwhelmingly non-renew or outlive their policies2.  Term Life insurance is temporary life insurance.  It is not supposed to provide life-long coverage by design.  It is calculated to provide the maximum life insurance coverage for the least amount of premium for a specific period of time.  This can be 10, 20 or even 30 years, but never for the life of the insured.  The mistake many people make is believing that these inexpensive premiums will remain low forever, when in fact, the reverse is true.  Life insurance premiums are priced based upon the insured’s health and age.  In your 30’s and 40’s, premiums are very inexpensive, but at advanced ages like your 60’s and 70’s, premiums start to increase exponentially.  More often than not, clients paint themselves into a corner as they grow older when they cannot renew their term life insurance policies for the following reasons:

  • Their renewing premiums have increased to a level that is unaffordable.
  • Their health status has made them uninsurable due to chronic and critical illness.

These scenarios occur every year in our business.  New prospective and existing clients are declined or highly rated when they attempt to apply for new life insurance.  In 2015, several clients wanted buy life insurance to protect their families, but could not procure coverage because they were chronically ill.  Here are just a few examples:

  • Client A is a 75 year old man who has been married for 45 years.  He has no permanent life insurance and he allowed his old term life policy to lapse years ago thinking he would no longer need the coverage.  After being diagnosed with cancer at age 72, he had a change of heart.  Our office shopped his medical records to a dozen different life insurance carriers, but we were unable to secure any offers because of his illness and invasive surgery.
  • Client B is a 50 year old married man with two children.  Unfortunately, he has had two very recent arrests and DWI convictions.  He has no permanent life insurance and his term life coverage renewal has become unaffordable.  His multiple arrests for DWI, mandatory rehabilitation and elevated liver enzymes have made him uninsurable.  He will no doubt lapse his existing policy and have no coverage whatsoever.
  • Client C is a 44 year old married woman with three children.  She has no permanent life insurance but wants a policy for her family.  Due to a chronic mental disorder and the subsequent dosage and types of prescription medications she has to take, her health rating was 200% more than a normal standard non-smoking female applicant.  This resulted in her having to buy a much smaller term policy because she could not afford the premiums of a highly rated permanent policy.

The moral of our story is to buy as much permanent life insurance as you can afford as early on as possible.  Almost all of our clients have term life insurance, but the more pragmatic clients actually purchased smaller permanent policies as part of a “blended plan”.  This way in 20 or 30 years, when the term policies have expired, clients will still have a paid up permanent policy for the rest of their lives.  This is the only way to guarantee you will always have life insurance coverage for your family.  In addition, buying permanent life insurance for your children is a great idea.  When your kids graduate from college and begin getting married or buying a home, they will already have the permanent life insurance policy in force.

 

[1] The life insurance contestability period is a short window in which life insurance companies can investigate and deny claims. The      two-year contestability period begins on the issue date of coverage and it protects insurance companies from financial losses due to fraudulent claims. Because the cost of premiums for life insurance is based on a buyer’s age and medical history, some people may try to minimize their premiums by intentionally misrepresenting certain aspects of their health and lifestyle, such as hiding facts related to a hazardous occupation, risky hobbies or unhealthy habits.

For more information or answers to your insurance questions, contact us at Allan Block Insurance Agency, www.ambins.com, located in Tarrytown, NY in the heart of Westchester County, a key business district near New York City.  We write auto, home, renters, condo, co-op, personal, business, life and group insurance for clients locally and in NYC, CT, NJ, PA, MA and many other states. The Professional Agency with the Personal Touch.