One of the first things most folks try to decide when purchasing a life insurance policy is…
“What kind of life insurance is the best?”
Which is a great question to ask, but the problem is, it’s really going to depend on “what” you would like to have your life insurance policy “do” for you and your family.
“This makes sense… right?”
After all…
If you’re just looking to cover the cost of a burial ceremony, it really doesn’t make all that much sense to purchase a $250,000 term life insurance policy that could potentially end decades before you’ll meet your end… right?
Conversely…
If you’re just looking for a life insurance policy to be used as collateral against a small business loan, the idea of purchasing a cash value whole life insurance policy doesn’t make much sense either!
This is why…
Most, if not all, “quality” life insurance agents/financial advisors are first going to ask you…
“Why do you want to purchase a life insurance policy?
And
“What are you hoping to achieve by purchasing your life insurance policy?”
Which is great!
However, within the insurance industry, there seems to be a “trend” nowadays to just “assume” that a term life insurance policy is “automatically” going to be the BEST for a client regardless of their situation.
In fact…
Some financial advisors and insurance brokerages actually refuse to offer folks whole life insurance policies entirely because they fundamentally don’t agree with them or perhaps because the understand that setting them up properly could require them to step out of their “comfort zone” and provide additional training to their agents.
Either way…
What we’ve found is that when asked…
“Why don’t you have your agents offer whole life insurance options to your clients?”
Most insurance brokerages will simply respond that whole life insurance isn’t necessary and everyone should simply buy term and invest the difference.
And…
Because the alternatives to a term life insurance policy tend to:
- Cost more than a term life insurance policy,
- And tend to have higher commission rates for those selling those alternative cash value whole life insurance policies,
Many individuals who would be better served by a purchasing a whole life insurance policy frequently choose to purchase at Term Life Insurance Policy because they don’t want to “feel” like they are getting ripped off!
“And who could blame them!”
After all, nobody…
Wants to feel like they got ripped off or “sold” an insurance policy that they didn’t need.
That said however…
We here at I&E can think of a “worse feelings” out there that one can have when it comes to owning the “wrong kind” of life insurance policy.
For example…
Let’s take a moment and think about what it must “feel like” when someone is nearing the end of their term life insurance policy and realizes that they’re not:
- Going to be able to afford purchasing a new term life insurance policy at their age.
- Or that because they’ve been diagnosed with some kind of “preexisting medical condition” since they originally purchased their term life insurance, they simply won’t be able to qualify for another traditional term policy!
Being stuck…
In this kind of situation probably doesn’t feel “fantastic,” particularly if on top of it all there still is a real “need” for insurance.
And…
Before we get into the argument about “guaranteed renewable vs non-guaranteed renewable term life insurance policies”, we need to point out to those that are thinking about purchasing a guaranteed renewable term insurance policy that they really ought to determine…
“What price they will need to pay in order to keep their term policy in place once the “fixed” term ends?”
You see…
Nowadays, many term life insurance policies will allow clients to keep their insurance in place without having to “qualify” for a new life insurance policy simply by paying the “new” premium set by the insurance company at the end of the original term limit.
But…
What isn’t often explained when talking about a “guaranteed renewable term life insurance policy” is that once the original fixed term ends, the policy then switches to a year to year renewable term policy where the premium can, and often will, increase year after year.
And guess what?
That new premium payment you must make to keep your guaranteed renewable term life insurance policy in force can often times become quite OUTRAGEOUS. This is why we always advise a client to ask their agent what the rate would be once the term ends so that you can get an idea of what we mean by OUTRAGEOUS.
But…
Don’t get us wrong. We here at I&E love helping folks qualify and purchase convertible term life insurance.
And…
In many situations, purchasing a term life insurance policy will often times be the best option for a particular client, it’s just that to “automatically” assume that a term life insurance policy is going to be the BEST for you without knowing more about your situation would not only be presumptuous of us, it would also be negligent!
Because…
We can tell you first hand that we get calls all the time from people asking about converting their existing term life insurance policy into a cash value whole life insurance policy, as well as from folks wishing that 15 years ago they had bought a whole life insurance policy vs term life insurance policy they have now that is just a few years from expiring.
This is because…
Whole life insurance policies serve a valuable role in helping protect family and to simply say that they have no value and should never be offered to a client in our opinion simply isn’t living up to one’s fiduciary duty!
Now…
With that said, we know that there will still be folks out there that are still going to think that insurance agents only like to encourage their clients to purchase a whole life insurance policy because they are more expensive than term and thus offer the agent a larger commission which is why we wanted to present you, the reader, with 10 reasons why we at I&E like to make sure that all of our agents are well versed on a wide range of insurance products and don’t simply try to pigeonhole everyone into a “One Size Fits All” approach.
Top 10 Reasons Why Someone Might want to Purchase a cash value whole insurance policy vs a term life insurance policy
Parent of a special need’s child.
One of the most common reasons why someone might suddenly realize that they need to purchase a life insurance policy is because they’ve just recently had a child.
And in many cases…
Finding the most affordable life insurance policy that will provide the maximum amount of coverage makes complete sense. This is where purchasing at 20 to 30-year term life insurance policy would make a lot of sense.
After all…
In most cases, 20 to 30 years from now your newborn will hopefully be on his or her own and not be dependent upon you for financial support.
But what if…
Your child has special needs which is probably going to prevent him or her from being able to financially support him or herself adequately throughout his or her life?
In cases like these, purchasing a term life policy regardless of how long it is presents, a situation where the policy could potentially expire or become too expensive to maintain before your child receives the policies death benefit.
In cases like these…
Wouldn’t it seem to make more sense to purchase a cash value whole life insurance policy that would stay in force for as long as you needed it regardless of how long you lived?
We here at I&E think so which is why we list it as the #1 reason why folks may want to consider purchasing a whole life insurance policy vs a term life insurance policy.
You’ve already been diagnosed with a pre-existing medical condition.
When it comes to life insurance underwriting, one of the main determinants used in qualifying an individual for life insurance is age. This is why in most cases, the younger you decide to purchase your life insurance policy, the less you will need to pay.
This becomes…
Even more true when you combine a pre-existing medical condition with an aging applicant.
For example…
Let’s look at situation where someone may have been diagnosed with a chronic pre-existing medical condition at an early age like type 1 diabetes. With type 1 diabetes, what you’ll generally find that it’s easier for a 25-year-old with type 1 diabetes to qualify for life insurance than it will be for a 45-year-old with type 1 diabetes.
This could be…
Because, aside from having type 1 diabetes, the 25-year-old will like have less potential health issue than a 45-year-old, but it’s also because the increased cost of purchasing a life insurance policy with a pre-existing medical condition like type 1 diabetes at age 25 will be significantly less than it would be for an applicant with similar health risks at age 45.
Which is why…
If you have a somewhat serious chronic preexisting medical condition, it may make sense to simply purchase a whole life insurance policy as young as possible so that you don’t find yourself trying to qualify for insurance at a later age, when qualifying for coverage could be much more difficult, not to mention much more expensive!
Young and Healthy
Along these same lines as our #2 reason for why purchasing a whole life insurance policy may make sense over purchasing a term life insurance policy is sometimes the cost isn’t all that big of a deal.
You see…
When you’re young and healthy, most of the time the cost of whole life insurance can actually be quite affordable. And a 10 year term policy is going to be less than your monthly Netflix subscription. That said, for some folks, price isn’t necessarily “king”.
You see…
Sometimes, the price difference between a 30-year term life insurance policy and a cash value whole life insurance policy isn’t all that great. Sure, the cash value whole life insurance policy is more expensive, but it’s not “that much more expensive”.
For example…
Let’s just say that a cash value whole life insurance policy is 3x’s more expensive than a 30-year-term life insurance policy. That probably doesn’t sound like that great of a deal, but if your 30-year-term-life insurance policy isn’t all that expensive to begin with, well than paying 3 times the amount may not be all that big of a deal.
But…
If you’re in your mid-50s, paying triple what you might pay for a term life insurance policy does become quite pricey, which is why we only say that for young and health clients, looking at a cash value whole life insurance policy might be worth it.
Family History
If you know that every male family member on both your mother and father’s side have died of a major heart attack before the age of 65 and you’re not an Olympic athlete yourself, you might want to consider purchasing a whole life insurance policy at a young age so that you don’t have to find yourself shopping for life insurance with a pre-existing medical condition like heart disease.
Now in cases…
Like these, purchasing a term life insurance policy still might make sense, but that’s all going to depend on what age you’re purchasing your life insurance policy at, and what level of “risk” your comfortable with.
This is why we here at I&E always stress that ultimately what type of life insurance is the “BEST” will be 100% up to you and your family, all we’re here to do is provide you with options and help you answer any questions you may have.
Denied coverage
Another fact of life when it comes to applying for a traditional term or whole life insurance policy is that some folks simply won’t be able to qualify for coverage.
This could be…
Because a variety of pre-existing medical conditions as well as other non-medical issues such as ones:
- Occupation,
- Travel plans,
- Hobbies,
- Driving record,
- Criminal background history,
- etc…
And while having access to dozens of different life insurance companies does help us minimize the number of individuals we can’t help, at the end of the day, there will simply be some folks who will not be able to qualify for a traditional term or whole life insurance policy no matter what we do.
For these folks…
The only option that may be available to them are small whole life insurance policies that will not require an applicant to answer any medical questions or take a medical exam in order to qualify for coverage.
These types of…
Whole life insurance policies will only require an applicant to be a US citizen and be over the age of 50 (some cases 45) in order to qualify.
The problem is…
That these types of life insurance policies will only provide around $25,000 dollars in coverage and will contain a graded death benefit clause which will limit when the policy will begin providing coverage for “natural causes” of death.
And while…
This may not be an ideal solution for a lot of folks, given the alternative of not being able to qualify for any other “kind” of life insurance policies, being able to present these options to clients can be a huge relief regardless of how “limiting” then can be at times.
We should also point out…
That while “technically” these are considered “cash value whole life insurance policies”, one should not purchase these types of life insurance policies expecting to accumulate any significant amount of cash value. And by significant we mean anything greater than a few bucks!
Just Bury Me Please
We can’t tell you how often we have folks give us a call looking for a small life insurance policy that will simply provide enough coverage for them or a family member to pay for a burial or one’s final expenses.
In cases like these…
Choosing to purchase one of the best final expense insurance policies offering a fixed level premium payment and a fix death benefit that will never expire can make complete sense.
Now these “types” of life insurance policies will generally cost more “dollar for dollar” compared to a term life insurance policy alternative, however having the peace of mind that for a small monthly fee their family members will never be burdened with the cost of their own burial, that cost is worth it!
These policies…
Are also very popular with family members looking to purchase a life insurance policy on a family member who may not be comfortable or willing to purchase a life insurance policy on themselves.
Family members of folks like these often realize that should their loved one pass away before them, the burden of burying them will fall squarely on their shoulders.
This is why….
Purchasing a small whole life insurance policy on their loved ones can provide the protection they need in order to pay for any burial costs or final expenses that may arise.
These “types” of policies…
Will usually require an applicant to answer a few medical questions and perhaps a few “lifestyle choices” questions (such as travel history, as well as questions pertaining to felonies or misdemeanors) to obtain the “best” pricing. That said, the vast majority of these “types” of whole life insurance policies won’t require one to take a medical exam.
We should note however…
that while these polices will accrue a “cash value” over time, one should not think of these as a “cash value” whole life insurance policy because the time it would take to accrue even enough case to buy a cup of coffee would probably take a few years!
Now…
For the remaining reasons why an individual may want to pursue a cash value life insurance policy, we want to get to some more “technical reasons”. These “reasons” will utilize some of the advantages built into “certain” cash value life insurance policies that aren’t available with term life insurance policies.
Our goal…
By mentioning them here in this list isn’t to make you an expert but just to point out that when “shopping” for life insurance PRICE isn’t always the most important factor one should consider.
Price…
Should certainly play a role in your decision-making process but only after you’ve determined which “kind” of life insurance policy is going to be the best for you.
So…
As you read through reasons 7-10, just ask yourself, is this a reason that could potentially make me want to purchase a cash value whole life insurance policy and if so, you can see how silly and negligent it is for a life insurance agent to simply refuse to discuss these options with their clients.
It doesn’t have to be all or nothing
One strategy that many life insurance agents fail to utilize is one that is commonly referred to as “laddering” coverage. Now what “laddering” coverage recognizes is that as one goes through life, their life insurance needs may change.
For example…
While someone is in their 30s, 40s, and 50s, they may have an increase need for insurance while they are working full time, probably trying to pay off a mortgage and stressed out of their minds thinking about the cost of colleges for their children.
Then…
Once they enter into their 60s and 70s, with a bit of luck, their children are out of college (living on their own), and their once formidable mortgage is now gone or is but a fraction of what it once was.
At this time, it would be fair to say that their insurance needs are not longer as high as they where when they were a few decades younger.
This is why…
It may make sense for someone in their 40s to purchase two different term life insurance policies.
Perhaps they could purchase a 15-year $250,000 term life insurance and a 30-year $100,000 term life insurance policy.
By doing so, they would have a total of $350,000 in life insurance coverage for the first 15 years when their insurance need is at it’s greatest and then $100,000 dollars in coverage for another 10 years as their insurance needs decline.
Which…
Is something that we here at I&E thinks is a great strategy, the problem is what happens if one “outlives” that remaining $100,000-dollar term life insurance policy? In cases like these, wouldn’t it be better to…
“Hedge one’s bet”
And buy a term life insurance policy and a whole life insurance policy together?
Maybe, we just won’t know until we talk to you and run the numbers to see if it makes any sense.
This is just another reason why we can’t understand how insurance brokerages can honestly say that there is never a reason to offer someone a cash value whole life insurance policy.
Estate Planning
Unfortunately for many of us, discussing life insurance isn’t all that thrilling of a topic. That and the fact that when we choose to discuss life insurance, we’re also forced to face the fact that one day we will die.
Which…
Let’s face it, is definitely depressing.
It’s probably also the biggest barrier we here at I&E face when trying to get folks to understand that while the biggest benefit to owning a life insurance policy is that when you die, your loved ones will receive a death benefit in the amount of the policy that you purchased.
Which is great…
However, there are so many other things that a life insurance policy can do for you and your family, that when utilized properly can far exceed their primary purpose.
The problem is that these additional benefits of life insurance aren’t always as easy to understand like a “death benefit” and these “benefits” want always be available to everyone who purchases them (think tax implications affecting certain tax brackets).
This is probably why…
It’s just easier for a life insurance agent hoping to appeal to the masses to say that Term Life Insurance is always the best because to dive down into the “nitty gritty” and discuss how a cash value whole life insurance can help a client:
- Store equity within their policy,
- Leverage cash between multiple investments,
- Defer capital growth tax free,
- Borrow against their policy’s cash value tax free
Becomes a bit overwhelming particularly if you’re working in a quota driven call center where one is expected to make a certain number of calls per day and speak to a certain number of “potential” clients per hour!
This is why…
Even if you’ve applied for insurance with another brokerage, it pays to take a moment and discuss what your goals are before ultimately deciding your done shopping for life insurance.
Business Buy Sell Agreements
Purchasing life insurance to fund a buy-sell can also be a very good idea when one owns a business with a partner. These are used so that if one partner dies and his or her family has no interest (or ability) to continue the work that the deceased business owner did, a death benefit from the insurance policy can be used to “buy out” the deceased business owner’s family.
This way…
Both the remaining business owner and the family of the deceased can both move on past the death of the insured without suffering too much (if any) financially.
Becoming Your Own Banker
The last reason that we wanted to talk about with regards to why someone might be interested in purchasing whole life is to be your own bank.
In this manner…
Policy owners use life insurance as a personal bank and are able to borrow against their own policies and paying themselves back rather than needing to rely on a bank for loans.
Now this assumes that one would have the cash on hand in order to make a significant payment to an insurance company to have money to borrow against.
That said however…
For clients who understand how “self-banking” works and are committed to the idea at an early age, even small monthly premiums over time can create significant savings that can surprisingly build up relatively quickly!
In fact…
We here at I&E are really big fans of the concept of “self-banking” or “infinite banking” as it is commonly referred to which is why we would recommend that anyone thinking about purchasing a cash value whole life insurance policy first take a look at our article titled: Top 10 Best Infinite Banking Companies.
And there you have it….
Our top 10 reasons why a cash value whole life insurance policy can be better than purchasing a term life insurance policy.
Now will a cash value whole life insurance policy be the “BEST” life insurance policy for you?
Who knows?
All we know is that if you do choose to give I&E a call, we’re not going to ignore the fact that these “types” of life insurance polices exist, and we’re not going to automatically assume that a term life insurance policy is right for you.
Instead…
We’re going to listen to what your needs are and present you with your options and answer any questions you may have, so that at the end of the day, you’re going to understand exactly why you chose the policy you did and understand why that policy is the BEST for you!
So, what are you waiting for? Give us a call today and see what we can do for you!
