Last week I started off by discussing the different insurance products out there and how they are tasked with providing money should the unexpected occur. I also spoke about how either life insurance is a misnomer, or we aren’t using it correctly.
Term ‘life’ insurance is actually death insurance. It pays out only if you die while the policy is in force, and there is a definite start and end date to it. The start date is when the policy is issued and the end date is usually either when you don’t need it anymore (and/or want to stop paying), or at the renewal date when the cost jumps significantly. Clients typically end up cancelling it.
I have met with many clients who get annoyed at the renewal cost of term insurance, because unlike our auto insurance renewals, the jump in cost can be 8-10 times the original! But please understand that the renewal option is there for your protection. For example, can you imagine that you are coming up to the end of the term of your insurance and you are diagnosed with a terminal illness. You now won’t be able to get a new policy, and if your current one expires before you do, your family would be out of luck. Rather than risk this happening, and creating negative publicity for the industry, the insurance company sets a renewal premium in the contract with this situation in mind. Insurance companies always assume that you are unhealthy and on your death bed. If you aren’t, you can apply for new coverage, let the insurance company look at your health and set your new cost of insurance.
With most policies, you also have the option to convert the term insurance policy, or any portion of it, to a permanent plan. That way you don’t have to worry about renewing the policy and the price going up.
Term insurance is very cost effective in the short term. Mainly because less than 2% of all term policies end up delivering a death claim. (Due to renewal costs and time – no longer needing the death benefit). But it does end up being the most expensive in the long term due to its low claim rate. Isn’t it nice to know it’s there if you need it though?
If you would like to discuss which type of insurance would be best for you, you can give me a call at 647-302-0151 or set up a time by following https://calendly.com/mjhfinancial/30min.