People hate life insurance. I get it, why would anyone want to hedge against their eventual death. I’ve heard it all about protecting your love ones in the event of your untimely and unfortunate demise. Protecting your family’s future from uncertainty if your income is not there in the future for ongoing expenses. If you’re a business owner, protecting your interest in the company, ensure your family is paid out, and the business will continue without you being there. But what’s in it for you? If insurance has paid out, then that means you met your unfortunate demise so everything could continue according to plan except without you as part of the picture.
Here’s a way to safeguard your family and or business and have your term life insurance with a return of premium option.
Term insurance is relatively cheap to acquire, but it’s also because it only pays out about 3% of the time. If your term insurance is coming up for renewal and hasn’t paid out, the good news is you’re still alive, but the problem is your life became about 4 times more expensive to insure. The other problem is the insurance company will only insure you until a certain age, usually 75-85. You always have the option to convert to permanent insurance. Still, by the time many people convert the cost of pure insurance is so expensive that they can’t afford very much permanent insurance.
People will say that Permanent Insurance is an option to entertain. Cash values will grow, but essentially you are overpaying for insurance today to see it grow in the future. Obviously, there is some huge upside to permanent insurance: helping to minimize the volatility of your retirement portfolio, money can grow on a tax-deferred basis and can be accessed tax-free at a later point in time. Unlike term insurance, if set up properly, life insurance will always be in place to payout. The challenge is it’s costly, and not everyone can afford it. The older we become, the more expensive Permanent insurance becomes an option.
So what’s the alternative? There are some interesting options that insurance carriers are coming up with today to address these very objections. If you could create a hybrid product that was appealing because the low cost of term insurance but also built up a cash component over time so you felt like at least you could get the money you’ve put towards insurance back down the road, wouldn’t that be more appealing? It pays out to your family if something happens to you, but you still have access to the money you’ve sunk into insurance if you’re not struck by the proverbial bus. Sort of like forced savings. But unlike other typical Return of Premium benefits like Critical Illness, your policy actually stays in force.
For Business Owners, the appeal would be even greater if you set up a Corporately-owned policy. Insurance premiums are paid in business after-tax dollars (approximately 15.5%) versus with personal after-tax dollars (whatever your marginal tax rate). In essence, you are blending the cheap cost of term insurance with some of the cash accruing benefits of personal insurance.
Is this option more expensive than regular term insurance? Of course, it is, otherwise everyone would be doing it. Not every carrier has products that are conducive to this format, so it’s important to investigate whether this is even an option. Another option is to potentially convert an existing term policy into a hybrid life insurance policy. Once again, this isn’t an option with all carriers, so it’s important to ask lots of questions beforehand.
Wouldn’t you like to have access to all the money that you’ve paid into life insurance premiums over the years? Interested in seeing what this new form of insurance could look like for you, your business or your family?