Term vs Permanent Life Insurance
Life Insurance can feel so much more like “Death Insurance” if we don’t focus on what the product we are purchasing does. We spend a lot of time analyzing the cost vs value of what it is we are buying, but is that a realistic buying strategy if you truly don’t understand how to analyze the “value” of the different types of life insurance? So often we are caught up in what the product is rather than what it does. This is where many of our misunderstandings of life insurance Begin
Knowing what type of life insurance is right for you can be less about how much the product costs each month and more about what it is you are looking to accomplish and can you afford to do this the correct way. For example, if you and your family needed a place to live for just a few short months while your home is being renovated, would you purchase another home to live in for 4 months? Likely not; it would make much more sense to rent a place for your family to rest their head during that short time, wouldn’t it?
Simple alternative ways of drawing comparisons help us better understand what type of life insurance we should take out on ourselves or our loved ones. In the example above we simply drew
The conclusion that renting was better than purchasing for the short-term need is similar to Term life insurance in many cases. You need Life Insurance protection, you need it at a good price, but you don’t need it long term, rather; you need it for a defined period of time, sort of like renting. Once you’re done with it, it’s done with you, everyone got what they wanted, you hope.
Sadly, many shoppers are uneducated on this process. The ability to understand these products as a consumer can be daunting and not having an advisor there to help you rationalize your situation and the different products out there can leave you making costly mistakes that may affect you for a lifetime.
One of the more common and major mistakes Life Insurance consumers make: Renting when you should be buying.
We discussed previously someone who needed a home to rent for just a short while and compared this to someone who needed Life insurance for a defined period of life, but not long term (per say). This makes sense in the event that someone needs the most insurance they can get for the best price they can find for the purpose of protecting a home during the time of a mortgage, or paying for your children education, healthcare, food, clothing, and other essentials if you as a primary provider pass away pre-mature. However; once your children are 18, off to college, grown up and have families of their own, do you really need 1 Million dollars of life insurance? Most people may say “no”, So we purchase Term life insurance, similar to Renting a home. It’s a short term need for a fantastic price. You do not own it (so to speak), you have no equity in the policy, it’s pure insurance coverage that will expire at a planned time.
So, what is renting Vs Buying when it comes to Life insurance?
The family we recently discussed was looking to rent a home, However, what if you are looking to purchase a home? Why would you want to purchase a home, what are the benefits to doing so? Most of us understand that purchasing a home means you are working towards owning the property outright. It belongs to you permanently at some point and you don’t owe any money on the home any longer. It is now a pure “asset’. There is equity in that asset that can be exchanged for cash. This happens when you sell the home, or when you take equity out of the home as a loan perhaps to make renovations, pay off a car, cover outstanding medical bills, pay for a child’s college education, etc. The hope is that one day your home will have more market value than you actually paid for the home or what you currently owe on it if it is not paid off. This is called Equity.
There are many types of Permanent Life Insurance policies out there, but to keep things simple, we will use Universal Life insurance as the example. Universal Life Insurance policies are permanent because they are intended to last forever and, in most cases, they are structured for the purpose of accumulating cash value, they can be paid off someday depending on how you structure your policy and you will own your policy outright. In this case, it has become an Asset that you can access its cash value, Borrow or Loan against it, use it to pay for your families living expenses in the event you pass prematurely, Pay for your Child’s college education, etc.
We are not intended to imply that Universal life is right for you if you want a long-term solution, or that Term Life is right for you if you need low premiums and do not want to pay premiums long term. The Turning 65 Advisor fundamentally believes that life insurance is not “one shoe fits all” and we do our best to ensure our clients that most broad opinions of Life Insurance are very risky positions to follow, as they are likely not written specifically to you, rather, to accommodate a widespread audience, all with different needs and financial purchasing power. We recommend you schedule a meeting with your trusted advisor to get professional guidance on Life Insurance in Peoria Arizona, or any other area in Arizona.