Benefits and Reality of Permanent Life Coverage
Everything is great until the twenty first year when the policy’s premium changes to annual renewable term and the price goes to $9,488.16 and then keeps increasing every year after until age 95 when the policy would lapse if the insured is still alive. At that point total amount of premiums paid into the policy would be $2,922,992 for a total (potential) death benefit is only 500,000. This is why the majority of people do not continue paying the premium after the guaranteed level term period, at which point they have to shop for more insurance (at their current age and health). Typically life insurance companies pay out less than 2% on all term life coverage contracts. The premium on a guaranteed permanent policy to age 120 would be $257 per month. Both the premium and death benefit would be totally guaranteed until age 120 and premiums would stop at age 100, so the total amount of premiums paid into the policy until life expectancy at age 78 would be $117,543 and the guaranteed death benefit payout with be $500,000 to the policy owner’s beneficiary. The main benefit of a permanent life insurance policy is being able to guarantee the life insurance will stay in-force until the insured passes away at a guaranteed level premium forever.
More Benefits of Permanent Life Insurance
Other benefits of permanent life coverage are accelerated benefits for chronic and critical illness which are typically not on term insurance, and if they are it is highly unlikely they policy owner will access benefits because a chronic illness (you need custodial care assistance) usually occurs when people are in their 70’s, 80’s or 90’s, at which point the term coverage has lapsed. So it is unrealistic to assume you will be able to accelerate the death benefit on term coverage for a qualifying chronic illness event, but if it is built into the term policy at no additional charge and you would be paying the same price or less for the term policy absolutely go with the term that includes chronic illness.
Another benefit of permanent life coverage is that it can build cash value so if down the road you would like to cash it out, take a loan, or stop paying premiums, the policy owner has flexibility and more control than a term coverage with would lapse if the premium is not paid after 30 days of the due date. This can be significant if you go through a period of time of financial distress and would not be able to pay the term life coverage premium for that period of time and would have to start all over if the term coverage lapses. If you had to start all over you would have to re-qualify health wise and be charged a higher premium at the age you are when you take out the new policy. The policy owner could also decide to pay up a permanent life coverage policy early. If someone wanted to have their life coverage paid up at 65 this is only possible through a permanent life coverage contract. The policy owner could also trigger provisions in the policy to take a guaranteed supplemental retirement income stream out of the policy with the safety of the policy never lapsing with some insurance companies. It is extremely important to work with an independent life insurance producer who has industry wide knowledge of the best products with highly rated coverage companies to make sure you get the correct solution for you. Take the time to educate yourself and talk to multiple insurance licensed professionals before rushing into the decision of purchasing life coverage because it could cost you a lot of money in the long run.
