Have you seen the commercials on TV or heard advertisements on the radio saying a healthy male, aged 40 can buy a billion dollars of life insurance for only $25.00 per month? Of course I’m exaggerating, but I see a lot of ads for life insurance lately and the numbers seem a little strange. I’m going to explain what they’re talking about.
Term Insurance vs. Permanent Insurance
I’ll start with a little insurance lingo. What’s the difference between term life insurance and permanent or whole life insurance? Term insurance is temporary life insurance. The coverage is in force for a period of time or a term. The usual lengths of the term are 10 years, 15 years, 20 years or even 30 years. This means, as long as you pay the premium, the coverage will remain for the length of the term. After the end of the term, the coverage will either stop or the price will go up dramatically. Here is an example of that from one of my term life insurance policies. I bought a $1,000,000 20 year level premium term policy at age 50. The premium will be $2145.00 per year for 20 years. At age 71, the premium will increase to $79,445.00. At age 75, the premium will be $120,155.00. At age 80 the premium increase to $203,675.00.
This means, if I want to keep this particular term policy past the age of 70, I will have to pay over $79,000 per year and the premium will continue to increase each and every year.
The other class of life insurance is called permanent life insurance. People get into some pretty heated arguments on the merits of term insurance versus permanent insurance. I’m not going there. I’m just trying to explain what permanent life insurance is and how it works.
With permanent life insurance you have insurance that will last your whole life. Hence the term, whole life. Clever, right? With permanent insurance the insurance company is basically averaging out the premiums that would be necessary to keep the face amount in force for your entire life. The premiums for permanent insurance are much higher than term insurance. For example, a $1,000,000 permanent life insurance policy for a 50 year old could be over $20,000 per year. Basically, with permanent insurance you pay more for the coverage when you are young and less for the coverage when you are old.
There are other aspects to this discussion but I just want to explain the difference between term life and permanent or whole life in regards to the insurance amount and the premiums.
So What Are These Guys Selling?
Here’s the pitch. A healthy male, age 40 can get a $500,000 term life policy for only $19.00 per month. That’s less than a dollar per day to protect you and your loved ones. That sounds awesome! Where do I sign up?
What they are talking about is a 10 year term policy at the very best health rating. Most people will not even qualify for the very best rating. You usually must be in very good health, no high blood pressure, definitely no smoking, have a great body mass index, etc. to even qualify for these top rates. A person in the next best rate class will pay approximately $22.00 per month for the same policy while a person in the standard rate class will pay closer to $40.00 per month.
But think about this point for a minute. How many 40 year old people only need life insurance that lasts until they are age 50? Then what? Apply again? Most people don’t get healthier as they get older. Now you’re 50, you still need insurance and you aren’t as healthy as you were at age 40. You no what that means? More premium or possibly you won’t even qualify for new coverage. That sucks!!
Here’s another thing that these advertisements are promoting. They say you don’t have to talk to an agent. There’s no middle man. Just fill out our online form and we’ll get you a policy lickety split. But all of these places are having life insurance companies underwrite the policies. These advertisers want you to think you are not having to pay a commission to old Ned Ryerson from Groundhog Day. But you know what? The premiums you pay for policies advertised on TV are the same price as the ones Ned sells!
What Should You Do?
I think if you have thought about getting life insurance you should talk to me. I’m a little biased. If you can’t talk to me, I would recommend talking to a real person who understands the way life insurance works. They can help you figure out how much coverage you should get and how long it should last. Maybe it makes sense to get a large term policy. Maybe you need it for longer than 10 years. Maybe it fits into your overall plan to have some part of your life insurance last as long as you do. It might make sense to have a term policy that you can change or convert to a permanent policy at some point down the road.
Here’s a real life example from one of my client’s experience. He had applied through one of the online places and actually got a policy. Then he called me and asked if I would look into his situation. He had a minor health issue that was putting him in the standard rate class with the company he had found online. I work with an insurance broker who helps me get the best underwriting for various situations. Some insurance companies work best for people in great health. Other companies are better for varying health conditions like previous cardiovascular issues or even weight. Because of the knowledge and experience my broker had, we were able to get my client insurance in a better rate class and save him quite a bit of money.
Although $19.00 per month for life insurance sounds great, it might not be the best deal for you and your family. Talk to a person who knows about life insurance. If you need any help finding someone…. I know a guy! Thanks for reading. KB