Term Insurance: the good, the bad, and the ugly

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By Jonathan Elkin

One simple question: What comes to your mind when the topic of life insurance comes up? Most people think of paying a monthly bill, and in return for that bill, your descendants will receive a sum of money after you die. Why pay hard-earned money for something you’ll never see or enjoy?
What if you were told that you could be guaranteed to make money on your life insurance policy during your lifetime? Interesting… What would come to your mind? Yes, I do feel like I should be preaching “the gospel” about insurance, and I feel like it is my responsibility that everyone I come in contact with realize that such a product does exist. That particular product is called permanent life insurance, and will be discussed in my next column. This article, however, will focus on the benefits and downfalls of term insurance.
Before I go further, I feel the need to explain that there are 2 main types of life insurance, term and permanent (also called whole life). Term insurance is life insurance that you purchase for coverage during a certain period of your life, usually 5, 10, or 20 years. Such a policy deactivates at the end of the term and the insured person may then choose to purchase a new policy if he so desires. Though many insurance agents, including me, tend to lean towards permanent insurance, term insurance can be helpful in certain situations. For instance, term insurance is significantly cheaper than permanent. Some professionals believe it is wiser to buy term insurance, invest the difference, and hope your investments pay off. A 24 year-old male may spend $2K/year on permanent insurance but only $500 on the same amount of term. If he invests the extra $1500 each year, after the term is over hopefully his investment will provide a safe haven for the family. In today’s economy, how safe are those investments? I’ll just leave it at that, for no more explanation is needed. Unfortunately, many term insurance buyers do not have the discipline needed to invest what’s left from their savings. Instead, they spend the extra money and have only a car or timeshare to show for it, instead of investments.
Also, when the term is up, what if you do want more life insurance? At that point the price has skyrocketed to much higher than the permanent would have been in the first place. Not only that, but what if you are no longer insurable? For instance, what if you have had a stroke, heart attack, or brain aneurysm? At this point, life insurance is not even an option! OK, enough about term insurance.
In the next issue of MOBILE LIFE Today, I will explain the basics of permanent insurance, including the pros and cons. Please feel free to contact me at any time if you have a comment or question. I like to think of myself as a free resource or a good second opinion.

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