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Hey there, it’s Ryan Cravitz.
All right, so today I’m going to talk to you about life insurance and specifically, I’m going to talk to you about a conversation that I had with a guy who’s looking to buy some life insurance and probably like many of you was very confused on what he should buy. There’s so many different products and such, and needless to say a little bit overwhelmed.
Here’s the deal when it comes to life insurance. There’s a lot of different types of products, but they all break down to two major types. One is term, and two is permanent. That’s it. Everything else is a variation within those.
When it comes to term life, you’re going to get some people that are going to tell you term life is the only life insurance policy that you should ever buy because permanent life is way too expensive, so you would never want to put your money into that. Just buy term life and that’s going to be the right thing.
Other people are going to say, “Why would you ever buy term life because if you outlive it, then you’ve wasted your money? I mean, that’s not very good. You should buy permanent life insurance. I mean, we’re all going to pass away eventually, so you should make sure that coverage is there so you’re not having to buy a term policy and then it expires and then you got to re-buy a new one.” Right?
There’s a lot of confusion as a result by consumers as to, well, what do I buy? And even within those, what type of products?
Here’s the thing; neither one is better than the other. Terms not better than permanent, permanent is not better than term, but one is going to be more appropriate for your situation. And in fact, it’s possible that they both could be appropriate for your situation. In other words, you may want to have some term life insurance and you may want to have some permanent life insurance, put together some sort of combination.
Anyway, here’s the conversation that I had with this gentleman the other day. He’s 52 or 3. I’m just going to say he’s 52 years old. Okay. He’s planning to retire in the next 10 to 15 years. Around when he’s age 65, he wasn’t quite sure. His kids were basically grown. They’re out of the house. One was still going to college, but that was about it, but basically they were self-supporting.
What he was really concerned about was his wife. His wife hadn’t worked outside the home in a number of years and had helped raise the children. He was concerned that if he passed away before when he felt that they were able to financially be able to retire, that he wanted to make sure that she was going to be protected. In other words, that if he passed away, his income would stop, and so he wanted the life insurance to be in there to provide an income source to his wife, to kind of bridge the gap, so to speak, until when they could actually afford to retire sometime around age 65. She was about the same age as him.
In that situation, what I recommended to him is that all he needs to buy is either a 10 year, let’s say you was 52, in order to get that coverage to age 62, either just buy a 10 year term or buy a 15 year term if he wanted to make sure that he had coverage that would go until he’s 67. But in his case, there was no reason to buy anything longer, because the shorter your policy covers you for, the less it costs.
Now he could of course buy a 20 year term. He could buy a 30 year term. He could even buy a permanent policy, which would cover him for his entire life. But the fact of the matter is based upon his overall situation, your situation could certainly vary, but based on his situation, there really wasn’t a need for life insurance once they could afford to retire. His wife only needed that policy in place on him in order to bridge the gap until their planned retirement date. In his case, he’s either going to do 10 years or 15 year term, and go ahead and save the money.
One of the questions that he asked me and I get this a lot in these types of situations is, “Well, I like that. I like that it’s the lowest cost, but I kind of feel like chances are I’m going to live until that age and then I’m going to feel like I wasted the money for the policy.”
Well, remember this is insurance, okay. So if you think about car insurance, let’s say you own a car for five years, or even for 10 years, would you want to pay for car insurance beyond when you actually owned the car? In other words, do you want to pay for insurance when you don’t have the need? In his case, it’s the same thing. He didn’t have the need for life insurance beyond when he could afford to retire. Same as homeowners insurance, right. If you don’t have the home anymore, why are you going to pay for homeowner’s insurance?
We’re all going to think of insurance as a waste of money if we don’t need to file a claim, but certainly with life insurance, none of us hope that we’ll actually have our family members or any of our beneficiaries that we’re trying to protect have to file a claim. But the key thing is just knowing it is there. It is in place in case we need it.
Now on the flip side, I want to bring up another scenario because this often comes up as well. I’ll give you an example. I’ll talk to somebody that’s, let’s say they’re 70 years old and their goal, the reason they want to look into buying a life insurance policy is because they want to make sure that they can pass along a certain amount of money to their kids and/or their grandkids. They’re looking for the best deal for a life insurance policy. The lowest cost coverage that they’re going to be able to buy typically is a 10 year term policy, which is great in the sense that it’s going to be inexpensive, or at least the most inexpensive compared to buying a permanent, a lifetime policy, but in her case, if she bought the 10 year term and outlived the coverage, it would not have served its purpose because she still wanted to be able to pass along a life insurance policy, the death benefit to her beneficiaries.
So in her case, it would make more sense for her to just go ahead and get a permanent policy that would be guaranteed to be in force for the rest of her life, no matter how long she lives. There are policies that are designed that as long as you pay the premium that you need to pay, it will stay in force no matter how long you do live. And it can be structured so that those payments don’t ever go up either, or the premium you have to pay, I should say, never goes up either.
Just a couple of quick examples. Sometimes term makes a lot of sense, sometimes permanent makes a lot of sense, and sometimes a combination even makes a lot of sense. I think that’s enough for now. Hopefully this was helpful. I look forward to talking to you again soon.