While your insurance policies may not expire with the calendar year, year-end planning is still a good time to review your term life policies that may be expiring in the next year or two.
For example, we recently encountered a client who during his year-end planning realized his term life policy was set to expire in a year, but he still wanted a few more years of coverage. The term life policy was intended to replace his income should he die before his son graduated from college. In this scenario, we take an assessment of where he is and what his needs are beyond the next few years.
What we’ve seen in the marketplace is a steady reduction in term policy rates. Actuarial tables show that people are living longer, healthier lives, and insurers have been able to lower term premiums for many age ranges. It is quite possible that a 50-year-old man could go back into the market and purchase a new policy with the same coverage as he had 15 years ago and pay nearly the same price, assuming he’s had no material change in health.
However, when shopping for a new term policy, you may be introduced to a product called a Return of Premium term life policy. If you die during the coverage of a Return of Premium term life policy, your beneficiaries receive the stated death benefit, but if you outlive the policy, you would receive all of your premium payments back at the end of the term.
These policies are clever from a marketing standpoint, as a consumer, you don’t feel you have thrown your money away. However, if you are making a $1,000 payment for 15 years, at the end of the term you only get $15,000. Return of Premium policies generally do not earn interest on premiums paid nor do they appreciate. They also do not account for inflation, so it is likely that your cash will buy less than it did 15 years ago.
Insurance is not an investment. It is a product that provides protection from a catastrophic event that you could not cover with your normal cash flow; therefore, we believe it is best to focus your insurance policies on a single issue. If you are looking for protection that will replace your income in the event you die, a term policy is often the best product. Term life insurance coverage allows investors an opportunity to receive great coverage with a guaranteed premium and death benefit at a low cost. This type of coverage can get most families through the meaningful years when an unexpected death would fundamentally change a family’s financial future. You are paying for the peace of mind that your family and heirs will be taken care of should the worst happen.
Many clients also come to us concerned about policies that are about to expire around the time they are retiring. To us, this is the perfect time for term life policies to expire. At retirement, when you no longer have a need to replace income, it is an ideal time to re-evaluate your insurance coverages. For example, you may be able to take the money you were putting toward a term life policy and put it toward a long-term care policy.
If you have questions regarding your insurance coverages and the protection you may need in the future, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
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