(This is a condensed chapter from The Life Insurance Marathon.)
Balance: without it, we fall. And it doesn’t matter if we’re talking about standing up on our feet, or putting together a life insurance strategy. If we place too much emphasis on one side, we wobble, we strain, we flail about, and finally, we fall. This brief article describes a strategy which will place you in a stable position to be balanced and successful with your life insurance planning. And the best part is, it’s simple, affordable and easy to implement.
As with most other things, success with life insurance begins with your attitude. You may not be aware of it, but there has been a great debate going on about the different types of life insurance during the past several decades. Some people have strong, passionate opinions. “MY way is the BEST way!”, “NO! I’M right and YOU’RE wrong!!” You get the idea.
The truth of the matter is, no one is right and no one is wrong. Individual needs are diverse; needs vary from person to person. And, your needs will even change throughout your life. Life insurance, as a product, is also diverse. There is a policy out there for every need. With the right policy design, life insurance can accomplish some amazing financial feats. However, it can also deliver disappointment if you’re ill informed.
So, how do you design a winning life insurance strategy? Let’s start with the things you control:
1. Accepting Reality – Everyone dies; it’s guaranteed. Your death will cause expenses; also guaranteed. By accepting these realities, you will begin to think in terms of covering expenses related to your death regardless of when it happens. In other words, for many people it makes sense to have a lot of life insurance when you’re raising a family, and less life insurance when you’re entering retirement.
2. A Reasonable Budget – Most people have a limit within their budget for life insurance. That’s certainly understandable. However, being reasonable with the dollars set aside to protect your loved ones is vital to a successful outcome. It’s easy to fall into the “cheap” trap. Cheap isn’t a bad thing, but if all of your protection dollars are dumped into the “cheap” side, you will be out of balance, and you’ll be disappointed in the end.
Now, how can you ensure that the financial needs related to your death will be handled in the most cost-effective way, regardless of when you die?
The Balancing Act ℠ – A Strategy for Success
Generally speaking, there are two opposing viewpoints when it comes to product choice.
1. Term Life Insurance offers an inexpensive option to secure your death benefit need. You can cover your entire need at a very low cost to your budget. However, it does not offer any living benefits. It doesn’t protect you against a temporary loss of income, which may ultimately cause your term policy to lapse due to non-payment. Also, most people outlive their term policy. It’s tough to look back over 20+ years of faithful payments and have nothing to show for it.
2. Permanent Life Insurance offers numerous living benefits along with a death benefit. It can provide a financial safety net for a future financial need, while the Insured is still living. Over
time, it can pay for itself through tax friendly equity build up. And you can even end up making money with the right type of policy. However, most people cannot afford the premium for a large death benefit Permanent Life Insurance policy.
For many people, Term vs Permanent presents a dilemma:
“Should I just sign up for pure protection for the amount of life insurance I need, knowing I’ll probably never use it and feel like I’m throwing my money away?, OR, Should I sign up for less life insurance than I need, and pay what I can afford into a policy that will at least return my premium payments in the future?”
These questions tend to set up a false premise, giving the feeling of a mutually exclusive choice; an “either/or”, when in fact the opposite is true. For most people, the answer is simple; CHOOSE BOTH. The fact is, you’re going to die someday. It may not be tomorrow, or next year. But sometime in the future, we all die. Why not set up your life insurance in a way that will satisfy your loved one’s financial needs whether you die young or old?
Here’s the logic for choosing both:
1. Statistically speaking, you will live a long life. If this is the case for you, and you have a Permanent Life Insurance policy in-force at the time you die to cover your final expenses, your loved ones will be in a strong financial position to handle all of your final needs. Starting a Permanent Life Insurance policy while you are young and in good health is the most budget friendly way to handle your final expenses.
2. However, if you’re the exception to the rule and you die young, while you’re raising a family, have debt, etc, you’ll have that covered with a large amount of Term Life Insurance together with a final expenses Permanent Life Insurance policy.
So, whether you live a long life, or you leave a young family behind, you’re covered appropriately. And the best part is, your Permanent Life Insurance policy can pay back the premium for all of the life insurance payments you made along the way. By using this strategy, whether you live a long life or not, you get something out of your purchase. And that is satisfying.
In my experience, most people are happiest with one type of policy which addresses the short-term and mid-term needs, such as income replacement, debt payoff, etc. (Term Life Insurance). And another type of policy for the long-term needs, such as final expenses (Permanent Life Insurance).
How To Design Your Own Balanced Life Insurance Strategy
If you’re like most people, you want something in return for the money you pay. Many people need a lot of financial protection when they are young and raising a family. At the same time, most people have a limited budget. If this sounds like you, the life insurance design process is actually quite easy. It can be broken down into three simple steps:
1. Decide how much life insurance you want to have in-force when you are elderly, for your final expenses. This is usually between $25,000 and $100,000. The younger you are, the more you need due to future inflation.
2. Decide how much life insurance you need if you die tomorrow (Use the Simplis Life Calculator).
3. Decide how much money you have available in your budget for life insurance premium. Remember, this needs to be a reasonable amount. Have an idea of how much is available in your budget rather than how much you want to spend. Try not to set an artificial limit to your budget before you gather quotes. Understanding how much you have available in your budget will help you design a sustainable plan.
When you understand your life insurance need and your available budget, you’re in control. Now it’s just a matter of finding the right balance of Term and Permanent Life Insurance. Is it $750,000 of Term Life Insurance and $50,000 of Permanent Life Insurance? Or, do you need $1,000,000 of Term Life Insurance and $100,000 of Permanent Life Insurance? Perhaps $250,000 of Term Life Insurance and $25,000 of Permanent Life Insurance will suffice for your situation. The Simplis Life Calculator will be a great help in understanding your total need. The Simplis Life Quote tool will provide you with pricing for the level of Term Life Insurance you need. A Simplis Life agent will assist you with quoting an appropriate amount of Permanent Life Insurance. Everything you need is right here. It’s easy with Simplis Life on your side.
Nearly everything in life requires a healthy balance to achieve desirable results. Life insurance is no exception. By using a balanced approach, you will place yourself and your loved ones in the best position possible to be successful in your life insurance planning.
Read our next blog post, “The Balancing Act ℠ – Case Study 1”, to see for yourself how this strategy works in real life terms.