Why Term Life is a "Needed" Financial Loser Term life insurance is cheap for a reason.

Term Life insurance seldom pays out claims.

We all die, why wouldn’t we want our life insurance company to pay our heirs a six or seven figure death benefit in return for the premiums we paid?

Insurance companies will tell you that roughly 98% of term life insurance policies are not in-force when the insured dies!

Imagine knowing that your house will eventually burn down, but setting up your insurance plan so you’ll likely drop your policy before the fire starts.

Term life insurance is a financial bonanza for life insurance carriers at the expense the buyers. Very few healthy people die young. Since life insurers get to see your medical information, they can safely predict the likely hood of you dying young before they offer you a policy. If you’re not a good risk, they will charge more or decline to offer insurance.

As you age, you will pay more to keep the policy. Eventually, the premium sky rockets as the chance of your dying increases with age. That’s when policyholders decide to drop their life insurance policy. It makes sense, the risk becomes great to the insurance company so they increase their premium.

Term life insurance is real “insurance” compared to permanent life insurance which is a deferred legacy asset.

What do I mean by “real insurance”?

Real insurance has three main attributes:

The loss of what you are insuring is substantial – think home burning down, bad car accident, loss of income due to disability
The chance of loss occurring (claim) is very small
The chance of claim is unpredictable – fire, flood, lightning strike

Term life insurance qualifies under the above characteristics.

You pay a life insurance company a fixed annual amount for a period of years. If you happen to die during that period of time your policy beneficiaries collect the death benefit.

Term life insurance has never been so cheap!

It’s cheap for a reason!

It’s cheaper than ever due to advances in medical technology and other factors that have prolonged life expediencies.

Term insurance is even cheaper when offered through your employer. That’s because you lose the coverage when you leave the company. Therefore, the insurer is only at risk if you die while you are employed at that firm. It’s not portable.

The death benefit from term life insurance is ideal to provide survivor income:

Term life insurance is the best answer for middle America (incomes under $100k) because of it’s affordability and need. The tax-free death benefit is the best way to create a lump sum of money to generate income or pay off debt when an income needs to be replaced due to death (think parent with dependent kids).

You can buy a lot of term life insurance for very little premium when you are under age 50. Premiums start spiraling up after that. Therefore, you may decide to keep term life policies until into your 50’s. Most people drop term insurance before they hit 60 due to the cost.

Many people would be wise to load up on term life insurance as it is the only affordable way to replace their income. For example, I ran an online quote and found that a healthy 39 year old non-smoking male with a very clean medical history could buy a $1,000,000 policy and have a level premium for $700/year guaranteed for 20 years. For a 59 year old that annual premium rises to $5,500/year assuming a very clean health history.

Term life fits most people’s budget’s when they are young and have true dependent need to replace the income of a breadwinner.

Is term life a Financial Loser? You’ll pay thousands of dollars in premiums when you have a sliver of a chance to have a claim (heirs collect) while you own it. If you only owned it your entire life, you’d be guaranteed to have a claim.

If you earn a six figure income and want to grow and pass a financial legacy then you’ll want to add permanent insurance to your financial plan. It will actually be there for your heirs whenever you die, you cannot outlive it. I’m a big believer in permanent insurance as I own it as do my clients.

https://www.lifeplanningtoday.com/1-million-in-life-insurance-not-enough-time-to-reevaluate/