Many people struggle with the decision to buy life insurance and often delay the purchase. Delaying the purchase of life insurance, whether for term or permanent coverage, can be a costly decision. For those who ultimately need permanent life insurance, buying it now is a much less expensive option in the long term compared to waiting to purchase it later in life or buying term insurance with the intent to convert to permanent insurance at a later date.
Insurance coverage becomes more expensive with age. People often choose to buy term insurance since it is the least expensive and easiest to understand form of life insurance. Many term insurance policies offer conversion privileges that allow a policyholder to guarantee their insurability and convert to permanent insurance at a later date without new underwriting requirements. Farmers Insurance, for example, offers Term Policy Conversions without additional medical underwriting for most of it’s Term Policies… To learn more go to: www.BobKingAgency.com
There are inherent risks, however, to buying term insurance with the intent of converting to permanent insurance. These risks include the policyholder forgetting when the conversion privilege expires, the carrier not offering competitive permanent products to convert to, or the permanent policy priced at the then older age resulting in much higher premiums than anticipated.
As a result, consideration should be given to buying a base level of permanent insurance today, if it is within the purchaser’s budget. Additional term insurance policies can be used to meet the total insurance needs and stay within the pre-determined insurance premium budget.
When buying permanent life insurance, the policyholder should commit to paying premiums even during difficult financial times and plan to hold the policy to mortality. The purchase of permanent life insurance needs to be viewed as a long-term financial obligation. Therefore, it is financially prudent not to buy more than one can afford and stay committed to. Over the long term, buying permanent insurance now will reduce risks and save money over the insured’s lifetime if the insured lives to average life expectancy or beyond. It’s generally proven that the purchase of a permanent Universal Life Product versus the same purchase of a Term Life Product will save the insured 25-60% of insurance cost over the life expectancy of the buyer. Term to Permanent purchases often cost the buyer much more over time because of the increased cost of insurance due to age.
Premium disparities for an insured with poorer health (e.g., sub-standard or rated underwriting classifications) are even greater.
This highlights the importance of evaluating and understanding life insurance alternatives and policy management expectations. It is often more financially prudent to secure some level of permanent life insurance upfront to save on long-term costs. In addition, a permanent life insurance purchase avoids the significant cost increase of converting term insurance to permanent coverage at later ages and the risk that the conversion privilege will expire before utilization.
This also highlights that it doesn’t pay to delay insurance purchases. Although policy pricing may go up or down in the future, the cost of insurance coverage increases with age. A significant change in health may have a detrimental impact on the ability to secure a preferable underwriting classification in the future. Locking in coverage now, whether convertible term or permanent, may be one of the most important financial decisions you can make.
For more information about Life Insurance and it’s role in your family’s financial risk management plan, contact the Robert King Insurance Agency in Texas. www.BobKingAgency.com or visit our blog at: www.24hr2Live.com