PERM VS TERM


Term insurance is an appropriate product for many people who have a limited paying capability and are convinced that the need for life insurance will not precede their actuarial estimated time of death. However, many people buy term simply because their agent is an “order-taker” and is reluctant to take the time to evaluate their customer’s needs and assess what would be most suitable for the buyer’s individual situation.  Selling a permanent plan would remedy the problems that often surface with temporary coverage sales causing the agent extra work and undue embarrassment down the road.

When insurance buyers are educated on how term and universal life plans work you may be surprised how often a UL product better fits their need for insurance. Make sure your clients are properly educated and not robotically dumped into a term sale that could actually cost them more over their lifetime.

 So what SHOULD I sell my client?

 You should consider selling term life insurance if :

  • Your clients need life insurance for a specific period of time. Term life insurance enables you to match the length of the term policy to the length of the need. For example, to help with your children's' education expenses should you die prematurely. Or if you want the insurance to repay a debt or mortgage buy a term policy for that period.
  • Your clients need a large amount of life insurance, but have a limited budget. In general, this type of insurance pays only if you die during the term of the policy, so the rate per thousand of death benefit is lower than for permanent forms of life insurance. If you are still alive at the end of the term, coverage stops unless the policy is renewed or converted (at attained age).
     

***Make sure that the term plan you sell has good conversion privileges; i.e. convertible for the entire term period. Does the company have a good repertoire of permanent plans? Will you earn new commissions when you convert it?  You may be surprised at what you find and these are some things you need to know before you determine your sale.

Remind your client that when they convert it to the permanent plan they will be doing so based on attained age. and that premiums are lowest when you are young and increase as you age. Some term insurance policies can be renewed when the policy ends, but the premium will increase substantially. Some policies require a medical examination at renewal to qualify for the insurance.

You should consider selling permanent life insurance if:

  • Your client needs life insurance for as long as they live. A permanent policy pays a death benefit whether you die tomorrow or live to be 100+.
  • Your client wants to accumulate a savings element that will grow on a tax-deferred basis and could be a source of borrowed funds for a variety of purposes. The savings element can be used to pay premiums to keep the life insurance in force if you can’t pay them otherwise, or it can be used for business and estate planning purposes. The death benefit can be used as collateral for a loan, and if you die before it’s repaid, the insurance company collects what is due the company before determining what’s goes to your beneficiary.
     

Keep in mind that premiums for permanent policies are generally higher than for term insurance. However, the premium in a permanent policy remains the same no matter how old you are, and regardless of how your health holds up, while term can go up substantially every time you renew it, and if you’re not healthy the company can choose not to renew it at all.
 

Lastly, ask your client to consider the total life insurance premiums paid over their lifetime. Do the math for them. It's quite possible that  locking in a guaranteed level lifetime premium today will cost less in the end.

For example:

Say a male, 45, who qualifies for the best underwriting class available purchases a 20 year term plan today. He'd pay about $635 annually for 20 years. Then what? If he outlives the term plan he'll be 65 and in need of purchasing life insurance again. At today's costs, IF he could still qualify for the best class, he'd pay around $9900 annually until death. In this case we'll say his life expectancy is age 80. His total premiums paid over his lifetime would be about $161,350. However, had he purchased a guaranteed universal life plan at age 45, which he can pick up for about $3,580 annually, he'd pay $125,300 over his lifetime. That's a savings of over $36,000! And the longer he lives, the more he saves. Do you want to pay a $9,900 premium at age 75?

 
Did someone say commissions?