Term insurance or whole life: The Third Option
Term insurance or whole life? Financial advisors and self-proclaimed experts continue to debate the topic.
Well… I’d like to offer a third option today.
Convertible Term Insurance Solution
Let’s start by resuming the most obvious and popular choices.
Term insurance lets the insured have more coverage at a lower premium and provides greater protection, such as a death benefit. Term life insurance policies don’t provide any benefit because they are only valid for a limited time and can expire (like product warranties).
Like other insurances, term insurance is an “if” type of insurance. The benefit will not be paid if your house is damaged, vandalized or someone dies long before you expect.
Whole-life insurance is insurance that can be used to cover “when” situations. This policy is permanent and allows policyholders to save money while also building equity in a policy that provides a benefit when the insured dies. These policies can be purchased through mutual insurance companies and have a long track record of paying dividends. They also provide tax-advantaged growth and the option to borrow against the equity.
There are many opinions on the matter and life insurance customers feel forced to make a choice.
It’s a binary choice. Sometimes “both” term insurance or whole life is possible. What if we could actually have both term and whole life in the same policy?
Think about questions like:
- Steak or lobster?
- Are you a cat or a dog?
- Ginger or Mary Ann
These questions will help us choose one. What if we want both? It’s possible to have both surf and turf.
Life insurance: Should you rent or buy?
Insurance policies can sometimes be compared to a house that you can rent or buy. Term insurance is similar to renting life insurance. You can only keep it for a specific term and then it’s gone. Whole life insurance is a process that allows you to “buy” the entire asset as soon as your first premium payment is made. Similar to how you buy a house by paying your first mortgage payment.
There’s another option for life and homes insurance…
Many people “rent to own” a house. This arrangement allows you, the lessee to rent the house while also allowing you to purchase it later. You don’t have to purchase the home under a lease-to-own agreement. However, you can if you wish. You are preparing to purchase a home.
Did you know you can also “rent to own” a life insurance policy?
These policies are also known as convertible term insurance. Convertible term policies give the insured the option to convert a term policy into a permanent, whole-life policy later.
A convertible term policy, which is typically a term policy with a level death benefit over a certain term or time such as $500,000 for fifteen years, can be converted to whole or partial life insurance within a set time. A convertible term policy can be applied for today and placed in between 4-8 weeks. You can then decide later whether or not you want to convert it to whole life insurance… without having to requalify.
If you are looking for a solution to your problem, this could be it.
- Don’t leave your future insurance in the hands of chance.
- You know that you want a whole life, but you are on a “term” financial plan.
- Already have a whole-life policy? Want to lock in your purchase power?
- You want to safeguard your assets and income.
- Have (or expect to get) children to whom an inheritance is desired.
- You would like to be able to store cash in an environment that is tax-advantaged.
- You want to permanently increase your death benefit while maintaining low premiums right now.
Convertible term insurance is right for you. Take a look at the following:
5 Things You Need to Know About Convertible Term Insurers:
1. It secures your insurance.
This benefit is vital, regardless of whether you know it or not. Life insurance can only be obtained if you are considered to be healthy. Home insurance can only be obtained if your house isn’t on fire.
It is possible to secure a higher qualifying class than what you would normally be able, which can lower your insurance costs. You may experience high blood pressure, higher blood sugar or cholesterol. as you age. You can guarantee your future insurability by purchasing a convertible term policy.
If you are currently healthy but have a family history with diabetes, heart disease or cancer, future insurability could be very important. It cannot be stressed enough that you don’t know what the future holds, and your insurability could change in a flash.
2. Convert within a specified timeframe
Convertible term policies cannot be converted during the entire term. This is usually the first half of the policy’s term. If you have a 10-year convertible policy, you may only have five years for the conversion. It is important to understand and properly manage the policy’s timeframes.
3. Converting a small portion of a policy can be converted to whole-life insurance.
You can convert half or all of a convertible term policy that has a death benefit of $1,000,000 to a convertible policy.
You should keep in mind that the minimum amount required by the company for convertible term insurance policies may be $200k. This could impact your options. You cannot convert the entire amount of a convertible term policy if you have a $200k policy.
4. You want to ensure your Human Life Value, there’s not a need for analysis to determine the optimal amount.
Insurance companies will not offer you insurance for any amount that you desire. A person earning minimum wage and having minimal assets won’t be able to get $10 million in life insurance. It has to make sense. There are two ways you can determine how much life insurance to get.
The “needs assessment” method determines how your family will survive the loss of a breadwinner. This could include the amount required to pay off a mortgage or pay college tuition. It also may be used to maintain a certain standard for living for a spouse.
We prefer to measure “Human Life Value”, which is a person’s economic worth, as measured by their earning ability or assets. This is how insurance companies determine how much insurance a person is eligible for.
The HLV of a person is usually 15-20% of their income. However, it can go up to 30% for business owners. Another way to calculate HLV when the insured is no longer working is to measure gross assets. This includes debts.
HLV is preferred over HLV, as the needs analysis method often shortchanges heirs and limits life insurance’s usefulness. Life insurance is the best way to pass assets on to the next generation, or fund foundations and charities. It also provides a financial vehicle that allows you to store cash efficiently.
5. If you want permanent insurance but don’t need to pay higher premiums, a convertible term is an excellent option.
Convertible term policies can be purchased at a competitive price. Even though you may be putting in a permanent death benefit, premiums for convertible term policies are not significantly higher than regular term policies.
Converting can even result in cost savings. Credit is usually given towards your whole-life premiums for the amount of one year’s convertible term premium payments.
Many people wait until it’s too late to get life insurance. Convertible term is a good option if you’re unable to afford the policy you desire.
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Like “steak, lobster?” The question of “whole-life insurance” or “term insurance?” False contradiction is almost always presented. False contradiction presents two seemingly opposite options and tells us to choose one.
This implies that you can buy either one or the other but not both and there are no other options. This question distorts the benefits of life insurance policies into a false dichotomy between now and later.
Are you looking to save money now (lower term premiums) or later (by securing equal premiums with your whole life)
Do you want to get the maximum death benefit (term) or a permanent benefit (whole-life) that will provide a guaranteed benefit in the future?
You can buy whole and term insurance. This is a great option and one we recommend often. Convertible term, however, is another option that allows you to choose from many options.
We’d be pleased to give you a quote on a convertible policy. It might surprise you how affordable it can be to lock in lifetime protection.
Contact us here and it can be done over the phone or virtual.