Saturday, September 15, 2007

Term life insurance objections

Here are some objections or questions I get from clients about term insurance.

1) What happens at the end of the term?
Your life insurance policy will renew itself. When it renews, your new rates will be based on your current age. The premiums will remain level at 5 year intervals until age 70. After that age, your premiums goes up every year until age 95. At age 95, you will no longer be covered.

At the end of the term, it is possible for you to exchange the current term policy to another term policy. You do not need to provide proof of insurability unless you are increasing the coverage.

2) At the end of the term, my premiums goes up.
True, but that won't happen for another 20, 30, or 35 years (whatever level term you have). By that time, you probably won't even need life insurance. Why? Take a look at your current situation. You may have a mortgage and some other debts to pay. You may kids dependent on your income. You probably don't have lots of money saved. But in 20-35 years, your kids becomes adults, your mortgage should be paid off, and hopefully you built enough savings to retire on. At Primerica, they teach clients to buy term and invest the difference. Why? So that you can rent wealth (which is term insurance) and accumulate wealth (the investing side) at the same time.

3) I heard that less than 2% of term policies rarely pays up.
While this may be true for other companies, Primerica pays an average death claim of $2 million/day. An average face amount of Primerica term policies is around $280,000.

Basically the phrase "less than 2% of term policies pays up" is a sales tactic used by agents trying to sell you a cash value life insurance policy. While everyone wants to live for a long time, stuff happens and you can't predict when you are going to die. In fact, there is no real evidence on either type of life insurance that says what percentage of life insurance policies gets paid out. If there is evidence, who done the study? Was the study done by a group back up by insurance companies or independent researchers not influenced by any companies?

4) My agent or advisor says that my life insurance builds savings and I can use it anytime.
If you take a look at your life policy, you would see how it is the worst way to build savings. If you wanted to withdraw money out of it while keeping the policy enforced, you would have to borrow it and pay loan interest on it. If you take a look at the total amount of premiums you paid and the amount of cash value accumulated over time, you would see that you are paying at a loss. The time you may break even on your investment is when you are around 100 years old. At that age, your policy may cancel and you will get all your cash value.

If you have a universal life insurance policy, you will see that your cash value starts to grow and then it starts going down. At the end, you see the word "lapse." Even though premiums are level, the cost of your insurance increases internally every year. If you continue the same premium payment plan, your policy will lapse. The only way to avoid the policy being lapse is to pay more premiums than what is required.

At Primerica, they teach clients to always keep life insurance and investments separate. By keeping them separate, there is no such thing as borrowing and paying loan interest. You can withdraw money out anytime and don't have to put it back. If you worry about taxes when you accumulated 6-7 figures on your investments, you are only worrying about it now because you don't have 6-7 figures saved and you always seem to owe taxes when you do your income tax every year. If you talk to any wealthy person out there, they are not even worried about their taxes because they have so much money. Plus the government always seem to keep lowering taxes or giving tax incentives for the wealthy class.

7 comments:

Anonymous said...

I am in training to be a Primerica agent. I take my life license test next Tuesday. I have yet to do my personal FNA. I understand that I can improve my cash flow with a home equity loan, but why is it so difficult to find out what the current interest rate is?

Doing the Right Thing said...

You do realize that you are not improving your cash flow with a home equity loan right? You are borrowing money and you have to pay it back. Unless you mean you know people who wants to take a home equity loan, then you can get paid commissions on that.

The current interest rate is dependent on the market performance. It will constantly change everyday.

Adam said...

Few things always remain a fact and will never change any matter how forward man might progress and death being one of them. It is a bitter truth that we plan for years but are uncertain even about next moment and that is where wise people make their decisions. To save their families and loved ones from any unfortunate incidence they opt of life insurance policy. While being in this state term life insurance quote online might be the first project they all look up to.

Life Assurance Quote said...

These are some of the questions that many people have in mind. Thanks for giving informative and helpful answers. Keep it up!

Anonymous said...

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