FOR YOUNG FAMILIES: Term + Perm

It’s difficult for young families to purchase a permanent (“perm”) policy of life insurance.  Yet, they realize that buying a permanent plan can mean having a tax-deferred build-up of cash values whereas term provides insurance for a specific period of time with no cash value.  What can agents and advisors do to help their clients be financial protected against a catastrophic loss and still provide value in the process?

First, it’s important to stay focused on the actual amount of death benefit that a young family needs.  If the only way that amount can be purchased is with inexpensive term, then that’s the solution to the problem for now (See “FOR YOUNG FAMILIES:  Convertible Term”).

If the premium for providing the needed death benefit is well within the financial reach of the family, suggest carving out a portion of the convertible term amount with a “final expense” plan of insurance.  That would be a permanent policy with cash value accumulation potential and guarantees to remain in force until the insured dies.  Right now, “final expenses” are estimated at a low of $5,000 up to whatever else might need to be paid off, assuming the insured were to live to “mortality” (expected life span).  Some analysts put that figure currently at around $25,000.  But, if you are working with a young family in their early thirties, mortality is likely to be in another fifty to sixty years from now.  How do you estimate final expenses that far away?

The answer, of course, is that you can’t.  You can only ask lots of questions, listen, do some future-value calculations, and review your fact-finding to determine an appropriate face amount for such a policy.  Let’s suppose, however, that the total death benefit needed is $500,000 and, in your estimation, $100,000 of that could be made up of a permanent plan of insurance.   So, you propose a convertible term plan of life insurance for $400,000 with low, level premiums for 25 or 30 years and a permanent plan of insurance for $100,000.

Now, the question becomes, what kind of permanent plan of insurance do you propose?  With so many different kinds of permanent plans out there today, which one would be best for your client?

To be continued….