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Should You Ever Consider Permanent Insurance?
By JLP | May 4, 2006
Short answer: yes, you should consider it if you think you are going to need insurance throughout your entire life. As you age, term insurance becomes more expensive and will be unaffordable in old age. On the other hand, permanent insurance is quite expensive but will last as long as you keep the payments up. Marshall Loeb wrote a pretty decent short article on the pros and cons of permanent insurance that you might want to read. He makes a good point that if you have a disabled child that you will need to provide for, you might be a good candidate for a permanent insurance policy.
The important thing is to make sure you have a trusted insurance agent. Fortunately, my father-in-law is in insurance business so I have someone I can go to when I need my questions answered.
Topics: Financial Planning, Insurance | 9 Comments »
May 5th, 2006 at 1:32 am
Just a heads up the link is going to an RSS feed for me
May 5th, 2006 at 10:27 am
Yea, I agree that there is a place for it. But only in rare circumstances, like the aforementioned special needs child. Few people need life insurance when they are 80. This was the topic of one of my first posts.
May 6th, 2006 at 2:01 am
I agree with LA.
One of the other rare moments for life insurance in old age is as a potential estate planning tool to cover estate taxes. Often the only insurance obtainable is whole life at later ages.
Other than a disabled child, perm insurance seldom makes sense.
regards,
makingourway
May 24th, 2006 at 9:20 am
I agree there is a time and place for it. However, the reason why most people buy life insurance is to protect their family in the event they were to die. If someone needs insurance because they have small children (without special needs) they are better off going with a level term policy that is affordable. If they buy a permanent policy they won’t have as much protection and what usually ends up happening is they let the policy lapse in a few years because they can’t afford it.
July 19th, 2006 at 5:09 am
In a perfect world everybody would save what they needed and not need insurance benefits upon death at that point. In reality it can quite often be useful for a range of expenses and/or debt that may be left at death.
Gifting to a family member is another viable purpose as well as charitable giving. Also certain type of high end financial planning can make use of it.
A properly executed insurance plan will often be primarily or entirely made of convertible term with an adequate amount being converted if it is needed. It happens more today than in the past due to the high debt load of people over 60 in comparison to just a couple of decades ago.
It is neither as necessary, quite often in all circumstances, as some agents would have you believe, nor is it as unecessary ,in real world practice at least, as many others would have you believe either.
August 8th, 2006 at 12:47 pm
For full disclosure, I’m an New York Life Financial Services Professional.
Also, let me say that permanent life insurance is NOT right for everyone, and the type of permanent for a situation is just as important to whether someone should have it.
With that said, there are many different reasons to purchase permanent life insurance, that pertain to BEING A LIVE, not DEAD. I won’t address those, but there is one big additional reason for life insurance at death (regardless of the type).
That reason is cash. We have all learned, and probably most of us agree that in general “Cash is King.” However, most of us don’t actually have a lot of real cash. We have stocks, bonds, real estate, funds, etc., etc., etc.
When you die, cash is really king. There are a lot of different things that make cash necessary, not the least of which is how to divide an estate between heirs.
With cash, it makes it much easier for Heir A to say, “You can have the Disney Stock, I’ll take $$$.” Or “You can have the $$$ and I’ll take the condo.” If no one wants the condo, for example, with the cash, you have time to divest the assets without the often seen “Estate Sale”. Heck, you could use the cash to buy time to put everything on EBay
If the heirs never have a problem dividing up the assets, then any additional assets in cash are also easily divided.
June 25th, 2008 at 2:05 pm
I think there are times when permanent life insurance is needed, and times for term life insurance.
If you’re young, with a family, and a house/mortgage you may need the most coverage at the lowest price for a specific number of years – in this instance, term life insurance may servce you well.
If you just need a small amount of life insurance for your final expenses, and want to keep the coverage your entire lifetime, permanent life insurance may be the right plan for you.
Also, some people choose to purchase a larger term life policy for 10-20 years while their kids are young, and also a small permanent life insurance policy to keep for their entire lifetime.
It depends on your situation, and what your needs and budget can accomplish.
January 27th, 2009 at 5:34 pm
Cash value is a bad idea? Tell that to my client I had breakfast with this morning. For the last 17 years he has paid $5,000 a year into his policy. In December when he put in his $5,000, his cash value increased by $17,850. How did you guys do in the market this year? My client’s portfolio was down 31% overall in 2008. He is 40 years old and plans on paying $5k annually into this policy until he is 70 years old……..and why not, he is on pace to put in $150K and have $1.5 go into cash.
Are you people out of your minds? Cash value life insurance is not the problem. Buying cash value life insurance through bad companies is the problem. I work for the most prestigious financial security company in the world and from 1978 – 2008 our dividends have ranged from 7.5-11.25. 10 year average of 8.8%. Tell me a bond portifilo that outperforms that.
January 27th, 2009 at 5:35 pm
Cash value is a bad idea? Tell that to my client I had breakfast with this morning. For the last 17 years he has paid $5,000 a year into his policy. In December when he put in his $5,000, his cash value increased by $17,850. How did you guys do in the market this year? My client’s portfolio was down 31% overall in 2008. He is 40 years old and plans on paying $5k annually into this policy until he is 70 years old……..and why not, he is on pace to put in $150K and have $1.5 go into cash.
Are you people out of your minds? Cash value life insurance is not the problem. Buying cash value life insurance through bad companies is the problem. I work for the most prestigious financial security company in the world. From 1978 – 2008 our dividends have ranged from 7.5-11.25. 10 year average of 8.8%. Tell me a bond portfolio that outperforms that.