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Why is permanent life insurance bad? • The insurance problog

Most other sites that publish information on permanent life insurance will insist that it is ALWAYS a bad idea. The implication is that no one needs to have a life insurance policy that lasts forever. In fact, most financial gurus, mega-personal finance websites (nerdwallet, valuepenguin, lifeant, Nasdaq, etc.) all agree that the term life insurance is superior.

Why is that? Well, if you boil down the opinions of these sites and the authors of their content, you will find one important reason: futures insurance is cheaper, therefore it is better. It sets pretty strict criteria for everything if we use that logic.

If we follow it in other major financial decisions, I guess that means buying an 89 Chrysler Lebaron is a better choice over a brand new Volvo. Why is it like that? Well, because it's cheaper and after all, a car is only good for taking you from point A to point B so why spend all that extra on a new, expensive car?

Hopefully you can detect sarcasm in the section above. The risk of always boiling everything down at one price is that it omits all considerations to determine the value. Someone said to me many years ago, "price is only relevant in the absence of value."

An important component for creating value by paying life insurance premiums is created when you die and your chosen beneficiary receives a death benefit check that you purchased. Why would not you want a life insurance policy that is guaranteed to pay a death benefit when you die? This is a good question and one that this site has struggled with since 2011.

What is permanent life insurance?

First, we should define permanent life insurance to ensure that we are all on the same page for the rest of the discussion.

It is not really a special product but more of a general term to describe all types of life insurance policies that are designed to remain permanent as long as you pay the required premiums. It can be whole life insurance policies like the insurance policies we discuss here on this site quite often – those that are designed to minimize the death benefit and maximize cash value accumulation.

Or it can be any type of universal life insurance – including guaranteed universal life, current assumption UL, indexed universal life (IUL), or variable universal life insurance (VUL). Yes, each of these products has different mechanics and there are whole groups of people who are dedicated to promoting the pros and cons of each. But that is not the purpose of this article at all.

Each of these products is considered a type of permanent life insurance and they can all work well for people who choose to own them. The proviso is, as always, that you have a competent life insurance broker who designs and implements your insurance to ensure that you get exactly what you want and that you finance the insurance correctly so that there will actually be a permanent death benefit – which means that the policy will exist when you die to pay your beneficiaries as you wish.

Premium payments continue for many years

One of the biggest disadvantages described on the major financial websites is that permanent life insurance is poor because premium payments last for too many years. While it is true that permanent policies can be designed to last forever (or at least until you die), this is not typical. In fact, most of our customers choose to pay their premiums for a limited period of -10 years, 20 years or in some cases as little as five years.

Suggesting that the premiums must continue for a long duration indicates that the person writing these articles has very little or no understanding of how permanent life insurance actually works.

Honestly, I think our views on futures insurance and permanent insurance are more shaped by our actual experience of working with clients. Most other online content is written by professional writers who get paid to write.

Just a few days ago I sat down with a potential client who was watching a certain life. insurance options. Do you know what their biggest objection to it was? That after 20 years (in this case) they no longer had any life insurance. And even if their need to reimburse their income for their children would no longer exist at the end of the term, they still wanted real estate settlement insurance and leave some inheritance to their family.

But the whole life and the universal life is too complicated for most people

It takes some time for most people to turn their heads around the whole life or universal life insurance. However, I do not think you need to understand your policy on the same level as me, a broker with over twenty years of experience understands it. It is not a realistic expectation for most people to have.

I dare say that most people do not really understand how their mortgage works or the difference between buying your home with a HELOC ] versus a fully amortized 30-year fixed mortgage. But that does not mean that either is too complicated, it means that you need to work with a competent resource that can help you find the pros and cons.

A basic whole life insurance is far from complicated. You pay the required contribution for the death benefit you want and the insurance pays the death benefit when you die. Very simple. A basic universal life insurance works in a similar way.

Is the term life insurance better for most people

There is an argument that the term life insurance is the better option for most people. At the very least, to the extent that you have a very limited budget and a life insurance need that must be met.

My "go-to" example here is a married couple where one spouse has a job outside the home and the other spouse handles household responsibilities together with children. In most cases, these people are usually in their late 20s, have a limited income, high costs and probably have a decent debt. One of my friends refers to this lifetime as a "compression zone".

There is a great need for life insurance here because you have a spouse who earns all the money for the household and if they were to die, the surviving spouse will need a lot of money to meet the needs of their children and their household for a decade or more. in most cases.

This is a textbook application for lifetime insurance. For a little less than $ 50 / month, the couple can in most cases buy several hundred thousand dollars in coverage.

You should always make sure that you cover your need for life insurance death benefit before buying an overfunded full life insurance policy (for example). Keep your priorities in order.

Let's put a bow on it

Permanent life insurance is not bad when viewed as a product. It provides a death benefit that lasts your entire life provided you pay your required premiums.

There are times when permanent life insurance is used in a bad way. If you have a limited budget and have a great need for life insurance, permanent life insurance is probably not the best solution for you. Make sure you buy the right life insurance for your situation and that you are on the right path.

If you need help deciding what works best for you, please contact us. We help people from all over the United States find out every day and have been doing this site for almost ten years.

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