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In the long term

In the long term

Recently I have had conversations with several clients that have had concerns about their life insurance.  These weren’t just generic concerns over having enough.  One case was regarding an alarming letter my client received stating that their “Term Life” term end date was approaching in a matter of months.  The other unrelated client was dreading the expiration of her “term” in just under a year.  I’m not bashing Term Life.  There are genuine and good reasons to own a policy and I have one myself.  But I have multiple policies and the term policy was taken shortly after purchasing a home.  The word “term” in this life insurance context refers to a fixed, finite period of time.  As in, you are covered for a given premium for a set period of time.  These policies typically have terms of 5, 10 and 20 years.   Some have payments that never change over the term.  Some have payments that go up each year or two.  You see, Term Life is usually very, very affordable.  You should ask yourself “Why is it so affordable/cheap?”  Well, the over-simplified explanation is that once the term (period of time) is over, the premium ‘catches-up’ to what it would really cost to pay out the large benefit, should the policyholder pass now that they are older and have paid very little into the policy to begin with.  So my client I mentioned earlier had received one of the notices that explained that when the term ends on such and such date, the payment will raise to $xxx.xx per month.  In this case the payment increased to nine times what they had been paying.  Sometimes insurers will allow term policyholders to “convert” their term policy to a Whole Life policy that has guaranteed payments that don’t change and usually goes to an age around 100 or more, hence-  your “whole life.”  But Whole Life policies are more expensive, so someone with a $200,000 Term Life policy may convert it to a $25,000 (or less) Whole Life plan.  But that way, some permanent type of coverage would go on.  Term Life also has no cash value that accumulates over time like other forms of life insurance do.  This means that when your Term Life policy is coming to the end of its term, and the only the option is to keep it now that the payment is going WAY up- there is no cash value to take with you when you decide to stop paying at the end of the term.  It’s safe to remember Term Life as “temporary” life insurance.  There is a place and time to take a term policy.  But if the only reason you are looking at it is because it’s cheap, you might feel like the people I spoke about earlier 5, 10 or 20 years from now.  Talk with a professional to help you figure out which type of insurance best suits your situation.   

Written by Ken Kitchen, CLTC for HRC Insurance Services 

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