A Case for Permanent Life Insurance

I’m helping a couple in the Southlake / Colleyville area with their insurance policies.  We redid their home policy and are discussing options on the husband’s life insurance.  We began the process by reviewing what he has now and discussing what he wants to accomplish.  I ask three questions in all life insurance discussions:

  • What do you want the money to do?
  • How much will it take to do that?
  • What can your budget handle?

We met for coffee and discussed the goals he has for these policies and then outlined the amount of money or coverage it would take to accomplish his goals.  One of the goals he has for any life insurance he gets is for it to last well into his golden years.  In order to help him accomplish this goal, I shifted from term policies to permanent life policies.

Term life policies last for a specific period of time or term, usually 10, 20, or 30 years.  Once the policy has reached the end of the term period they either end or may have the option to renew on an annual basis at the rate that corresponds with the client’s age at that time.  Renewing his term policy would be either unobtainable are ridiculously expensive.

In order to meet his goal for how long the policies would last, we needed to look at permanent options.  There are two ways to accomplish this; it can be done with a whole life policy or with a universal life policy.

Whole life policies typically last until age 100 or 120 and earn a base interest.  This interest helps the policy build a cash value the policy owner can borrow against or even cash out.  These policies are commonly bought for babies by parents or grandparents with the thought the policy can be cashed out to help fund college tuition costs.  I don’t usually recommend them for these purposes as a 529 plan can provide a better rate of return.  Whole life policies cost more than term policies because they last for longer, provide a more guaranteed rate of return, and accumulate cash value.

Universal life (UL) policies are a mixture of whole life policies and term policies.  Like whole life, they can be structured to last to age 100 or 120.  The longer the period, the more heavily weighted the ratio of whole life to term becomes.  They can also be set up to be more heavily weighted to help reduce costs but we don’t recommend that as it can create a situation where the policy becomes underfunded.

The biggest advantage of a universal life policy is it can have the longevity of a whole life policy at a price that’s between term and whole life policies.  If you’re up to a little risk, there are options for UL policies that are indexed to a stock index fund.  This gives the policy a chance to grow their life policy coverage amount, as long as the market is going up.  Universal life policies typically don’t have cash value accumulation or the ability to be borrowed against like a whole life policy.

With both of these policy types we have the ability of structuring a policy that will last until age 100 or 120, and this met my client’s requirements for policy time frame length.  I reviewed options and presented a broad outline of my findings to him.  My client then asked about the ability to access some level of the life funds in the event of a financial emergency or opportunity.  Term and universal life options don’t provide that but whole life does.  We determined what amount he may need to access and that allowed me to tailor a whole life policy that could accommodate that.

Based on the varied needs and goals my client has, I’ve structured a “portfolio” approach to address his needs.  This portfolio consists of the following policies:

  • A certain amount of term to help provide maximum coverage over the next 15 years.
  • This is complimented with a universal and whole life policy to achieve the total amount of long term coverage that lasts until age 100.
  • The whole life policy provides for cash accumulation and capital access as the cash value builds.

In addition to meeting his needs, we also are providing a solution that’s within budget!

There are many ways of meeting an individual’s goals to provide for family after a primary bread winner dies.  The right one depends on many variables such as age, investments, opportunity for financial growth, and the answers to the three questions I ask everyone.

Share your comments, questions, and experiences with me in the comments section of our blog, or on our Facebook and Google + pages.  I’d love to hear from you and answer any questions we can.

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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