My Love-Hate Relationship with Term Life Insurance


My Love-Hate Relationship with Term Life Insurance

I recently received a difficult call from a family friend. His brother Matt, age 44, had unexpectedly passed away, leaving behind a wife and two teenage children. He asked if I could assist with a review of Matt’s life insurance policy.

 

I met with him immediately and, upon seeing the policy, a slight bit of nervousness came over me because it was clearly a term policy. I took a look at the duration, which was 10 years … thankfully, the policy had been issued nine years prior and was in good standing as all premiums had been paid. My nervousness eased. I was able to tell my friend that Matt’s family will soon receive a tax-free benefit of $500,000. 

 

Temporary Love?

This event really had me thinking about term insurance – its purpose and place in the market. If Matt had passed away just one year later, his policy may not have been there for his family. And, since Matt had purchased his policy from a college buddy who was no longer selling insurance, chances are he wouldn’t have thought of purchasing another policy, leaving a gap in his family’s financial future. 

As it was, a terrible event was eased, just a bit, by immediate financial security. That’s what insurance does. That’s my love relationship. 

 

I own term insurance. I have sold term insurance. Term insurance works, as is shown in the above situation. However, selling a term insurance policy and not following up with it comes with as much peril as selling a security and not paying attention to the market. By its very nature, term insurance is a temporary fix, a Band-Aid that will swoop in and save the day in the darkest moments of people’s lives. But it does have a shelf life that must be paid attention to. 

 

Converting to a New Philosophy

Many reps say they will sell term and then convert the policy to permanent (usually universal life) when the client gets older. While a good plan, this leaves all of the control up to the insurance company. When your client needs to convert the policy, possibly due to declining health, will they still be able to? 

 

Many insurance companies have limited the conversion period of their term products. If they can convert, what products are available to convert to? Many insurance companies keep just a single product available for conversions, many times this product is not something that your client would have considered purchasing if not forced to.  Is that in their best interest? That is my hate relationship.

 

Today’s financial advisors don’t leave much to chance. They manage, they balance, they review and they make sure that their clients’ retirement income is secure. Yet many of these same advisors still pull out the term spreadsheet and sell a term product by price. They don’t have an insurance value discussion with their clients. How are their clients saving for college? How are they offsetting down market years in retirement? How are they accounting for the cost of medical care? Permanent life insurance can help with all of these things, and in a very tax efficient manner. 

 

I can understand selling term insurance for a young family who doesn’t have two nickels to rub together, or for business partners who have a specific time frame they wish to cover. But for most other clients, AND for almost all clients who use a financial advisor, life insurance should be sold as a value proposition, incorporated into and complementing all financial plans.  

 

Make a Permanent Change

Remove the love and hate, the yin and yang, the ups and downs that term insurance brings. Have a value added permanent insurance discussion with all of your clients and make sure they are covered whenever they may need it.