Excellent Question! What Kind of Life Insurance Should I Buy?
What Kind Of Life Insurance Should I Buy? Term Insurance!
Duh, Need You Ask?
In 1985, when I first started in the life insurance industry, we didn't really ask "what kind of life insurance should I buy?" because we didn't have the choices we have now.
Annually Renewable Term life insurance—ART
There was only one type of term insurance policy available- ART, or "Annually Renewable Term" insurance. Of course we had whole life insurance and the new "Universal Life" insurance, but those policies were typically more expensive and used for different purposes than buying the most affordable life insurance to provide maximum value for families.
ART policies featured premiums that started out low and increased each year at renewal time. Imagine a 45 degree angle where the left hand axis is the premium payment and the right hand axis is time and you'll understand that ART policies become unsustainable pretty quickly. These policies were used as an entryway to longer term products, most notably whole life insurance, which features high premiums, but builds cash value over a period of time. You could, however, switch into one of these whole life policies without proving good health, a feature called a "conversion option".
Enter The Conversion Privilege
The conversion privilege for a term insurance policy means that you can make the switch to a permanent life insurance policy without proof of good health. Chris Huntley, a colleague of mine, has put together a really nice resource for you to read about term insurance conversion and why it's important to make sure your policy has this feature. One other major resource Chris has is a definitive guide to how brokers select the best life insurance carriers for their clients. I actually use this resource of I have any questions about a good fit for a specific carrier/client.
Level Premium Term life Insurance—Life Insurance Heresy!
In the 1990’s insurance companies began to understand that it would be wise to create term insurance policies that didn't require increased premiums each and every year. I remember the first level premium term policy I saw was a three year level premium term insurance policy and that seemed SO revolutionary! It made sense that policyholders would want to keep term insurance instead of expensive whole life insurance, especially here in Palo Alto or the Bay Area, where housing prices and incomes were rising very quickly and folks realized that they needed larger and larger amounts of term insurance to replace the income of the main breadwinner or to pay off a large mortgage at death.
So, after the history lesson, you're asking, "ok, so what kind of life insurance should I buy"? Well, since you've probably searched for life insurance in Palo Alto, or maybe life insurance broker in Palo Alto, or any other Google search terms, then it's fair to say you probably live in the Bay Area, or California. If that's the case, then I firmly believe that you should buy the most cost-effective term life insurance possible to protect your standard of living for your family. With the California economy seeing massive price increases, a cheap term life policy is the only way to go...Especially since term insurance costs less than a new cell phone these days!
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