If you are considering applying for a term life insurance policy, this article will prevent you from making the #1 mistake made by many applicants each day. Many people purchase the wrong policy for their needs only to find out years later they made a big mistake and it is too late to do anything about it. They begin by comparing Term life insurance quotes and end up being impressed by the low rates form short term periods such as 5, 10 and even 15 years Term life insurance policies. There is a reason why these premiums are so cheap and the answer is statistics. They know in many of these cases the insured will outlive the life of the policy.
I see this happen on a regular basis and it can be a serious problem for people who originally thought they were making a wise decision when they first applied. Read this article carefully so you don’t pay the piper later. The end result could be devastating for you and your beneficiaries. This problem is also very easy to avoid with just a little common sense and basic planning strategy.
Affordable Term life insurance is a great policy design but you have to keep in mind that it is a temporary form of life insurance.
Many people dive in and just look to purchase cheap term life insurance and do not understand what they are buying and sometimes this come from some bad advice from other people. The concept of these term policy designs are very simple. You are purchasing a life insurance policy which is none other than a contract to pay the face amount to your beneficiary if you past away from accident or illness. Don’t count on purchasing an inexpensive 10 or 15 year Term policy today and when it expires go out and purchase another policy 10 or 15 years later. The new premium will be quite a bit higher at your new age and if your health history changes you could end up being uninsurable.
What you have to realize is this contract is temporary and stays in force for a specific period of time then disappears like a puff of smoke. You could at a given point in time convert your term policy into a Universal life permanent design or just continue paying the premium after the term period has ended. In either of these two cases the premium will many times be more than you can actually afford to pay.
Don’t let your choice in applying for cheap term life insurance become a land mine down the road.
The most common scenario I see is people in most age groups applying for a short term period such as 5,10 or 15-year plan design. This concept is fine if you are only planning on living for 5, 10 or 15 more years. The other exception is if the applicant only needs this life insurance for short term reasons such as paying off a loan or paying for college tuition. In most cases this is not the case and the applicant does not carefully consider the fact they will outlive their policy and come up holding an empty sack later on. If you purchase a longer Term period such as 25 or 30 years and you find for some reason you no longer need it, you can simply exercise your right to cancel your policy at any given time.
There is nothing worse than applying for Term life insurance and years later outliving your policies term period.
Careful consideration has to be made to make sure you are going to have your life insurance protection in force without having any gaps in coverage. A gap in coverage or your life insurance suddenly terminating could be a financial tragedy for your dependents who are the reason you have applied for life insurance in the first place.
Designing your life insurance portfolio is not a complicated issue. It revolves more around simple common sense that anything else. Not properly designing your life insurance portfolio can lead to a huge waste of your hard earned money and at the same time increase the life insurance companies profits margins. Your mistake would be the carriers financial gain!
Here are some examples that I see every day when people plan on purchasing a new term life policy.
Joe Brown is a 30-year-old male with a family of four, a mortgage and two outstanding car payments with college expenses down the road along with the usual expenses an American family has these days. Joe is interested in purchasing a 20-year term policy with a face amount of $1,000,000 from the Banner Life insurance company. The face amount of $1,000,000 should be an accurate face amount to have but the 20-year term period will mean that Joe will be without life insurance at age 50. Statistics will show that Joe will still have financial liabilities at age 50 but will no longer have any life insurance protection for his family. In this case a 30 year Term plan may have been a better choice or Joe could have purchased a smaller Universal life policy to continue on after the Term policy expired by time.
Ray Harper is 60 years old is married and owns his own home and has no current life insurance in force. Ray is interested in applying for a 10-year term policy from the Prudential Life insurance company. The statistics will indicate that Ray will probably still be alive at age 70 but again will have no life insurance at all in force because his Prudential policy had a 10-year term period and has now expired.
Bill Ryan is 28 years old and has just married and is planning on starting a family with 2 or 3 children. He also has a large mortgage payment along with 1 car payment. Bill took advantage of buying low cost term life insurance because of his young age. He is looking for a 30-year term policy with a face amount of $1,000,000. This case is similar to Joe Brown where the face amount is fine but in this case Bill Ryan will be 58 years old when his life insurance policy terminates.
What do these three people all have in common with each other?
These three examples all have one thing in common. According to the life expectancy statistics, all three people will outlive their life insurance and have nothing but a memory of having the peace of mind and financial protection that life insurance would bring to themselves and their families. This lack of planning before the purchase of life insurance happens on a daily basis due to the fact most Americans are either under-insured or not insured at all. Everyone likes to save money when they purchase low cost life insurance but you also want to have value with you life insurance so it actually works for you and will be there if you pass on.
Who comes out the winner when people outlive their life insurance policies.
The real winners here are the life insurance companies who have collected all the premiums and never had to pay out on these types of claims. Life insurance companies make a fortune each year when people are improperly insured. All these premium dollars become pure profit. The statistics show that approximately 68% of the Term life insurance policies sold in the United States never pay out a death claim. There are two reasons than can cause this and they are insureds lose interest in their life insurance and just stop paying the premiums. The other cause is that the term life periods are two short and the life insurance policy meets it’s anniversary period and the policy simply terminates.
Either way the life insurance companies come out smelling like a rose. Some of these people may come back again and purchase new life insurance and the whole process may start to begin again. The point I am trying to get across is carefully consider the terms of the policy so it covers you for the rest of your life. Virtually everyone will have some type of expenses or debt when they pass away and if you lost the life insurance you once had one or more of your dependents may feel a severe financial sting because of it.
What can be done to make sure a person will have life insurance for the rest of their life like most people actually need.
As I mentioned above this is not a complicated issue. Most of the time it will simply mean that the term period will have to be chosen with a longer time element such as possibly 25 years or 30 years which is the maximum. The other option is to either purchase a permanent plan design such as Universal Life or add a smaller Universal life on to an existing life insurance portfolio that includes a Term insurance policy. Always plan out your life insurance purchase so it will work for you with no anticipated surprises down the road.
If you are confused about any of this or have any questions, simply pick up the phone and gives us a call to get all your questions answered with no obligation. We utilize over 40 trusted life insurance companies to make sure you can see all your options. If you have any health conditions, we can pre-screen them for you so you can get an accurate idea of what your premiums would cost if you applied.
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