I was reading my weekend newspapers on Sunday and came across a section of the Business Section called Smart Money. It was the typical questions and answers wire section. The person responding to the questions was Bruce Williams. And Bruce was sponsored by Newspaper Enterprise Association.
In this question G.M. of New York City stated he was buying term life insurance and wanted to know which term to buy 20 or 30 years. G.M. went on to say he had an 11 month old baby and hopefully he will have at least 1 or 2 more children. He figured that out at age 36 he would have all of his ducks in a row by age 56, saved for his children’s college, he would have a small mortgage and sufficient retirement savings. (I thought G.M. had a great income) What G.M. didn’t say was how much life insurance he thought he needed to purchase.
Bruce answers G.M. by saying “he is in his corner about term life insurance”. Bruce suggests either to buy a 10 or 20 year term life insurance policy. Bruce does remind G.M. about the ability to convert his term policy to another life insurance policy prior to the term expiring (he never tells G.M. that not all term life insurance policies are convertible), but fails to mention that G.M. would convert to a permanent life insurance policy at rates reflective of his age. Bruce fails to mention that G.M. has a far greater chance to be become disabled than to die early. (That’s one of the problems about trying to get advice from a newspaper or magazine; you are always limited to one-liners).
After reading these 2 short paragraphs, I thought what a lack of information and recommendation Bruce Williams gave this person, if there really was a G.M. The more I reread G.M.’s letter the more I saw a need for life insurance for more than 30 years. First of all, good luck on getting your children out of the house by age 25 and being able to say you have no financial responsibility for them. As far as saving for retirement, if you aren’t committing about 20% of your income towards your retirement you will fall short. And who lives in their first house forever?
The proper way to go about purchasing life insurance is first based on doing a complete financial needs analysis, then looking at what financial resources you have to commit to a life insurance program. Your personal life insurance program should include the ability for you to be insured for all of your life, simply because you can’t predict what financial responsibilities you will have in the future and when those responsibilities will cease.
Sitting down with a financial professional, like a Certified Financial Planner, can help you design a life insurance program that in most cases will show you options you haven’t considered or haven’t read about. Whether it is a blended life insurance policy or a program of both term and permanent life insurance, you need options before you get at the end of a 30 year term life insurance policy. Simply put, if you wait to convert at the end of the 30 year policy term, you will pay rates when you are 31 years older and you may not have good options for the conversion policy you are offered. Not all term life insurance companies have competitive life insurance policies you can convert too.
Just like with anything else in life; you get what you pay for and there is no free lunch when it comes to purchasing life insurance.
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