The life insurance industry shot back with a new product called universal life insurance which would marry the best of term life with a flexible investment of savings into one life insurance policy. With interest rates sky high, this made sense. Well, we all know what happened to interest rates. They dropped and dropped and dropped where today, a 1 year bank CD only pays 1.25% instead of 11% back in 1984. Because of this drop the amount earned in the new universal life insurance policies also dropped which caused some serious problems. I'll have to explain these problems in another post. The life insurance industry did improve the universal life insurance policy and provided for guarantees that the policies would continue to provide the death benefit regardless of the policies internal rate of return.
The term life insurance policy also improved and rates came down. Term life insurance that once only was guaranteed for 10 years stretched to 20 years and then 30 years. This was a game changer for me and many people including consumer advocates. To me the purpose of life insurance is to protect the beneficiary and not to be an investment. I could debate this with anyone who believes otherwise and there are many. I look at life insurance protection no different than how I insure someone's house. When you write a homeowner's insurance policy, we first look at the amount of insurance needed to replace the dwelling. If the home will cost $300,000 to replace if destroyed then we insure it for $300,000 (Note that this applies to policies with replacement cost coverage. There are some home policies the provide for replacement cost less depreciation). Writing the same house for only $50,000 coverage is negligent. With life insurance, there is a method to determine the amount of death benefit. This is not a guess or something that is arbitrary. That's foolish and negligent. You need to look at the needs of the beneficiary. The beneficiary will use the proceeds upon the insured's death to payoff a mortgage; provide income; pay for education expenses; buy a business or a myriad of reasons. There is a rule of thumb used in the term life business to determine the death benefit but it is extremely crude. Many people will buy 10 times the annual income of the insured. So a spouse making $100,000 a year would buy a $1,000,000 policy. Definitely not scientific to determine the amount of life insurance coverage needed. We recommend having a financial plan developed by a Certified Financial Planner who will determine the amount of coverage needed. That's really no different than using a licensed real estate appraiser to determine the replacement cost of a house or building.
Term life insurance is the best value for the money. It doesn't work for everyone but it does provide a sound and sensible amount of coverage for the lowest premium. If you would like to discuss life insurance alternatives, please call me at 843-556-6232 ext 000. Nobody in Charleston has as much experience and companies available than me. I do take pride in this expertise that I've earned from over 30 years.
843-556-6232 ext 000