Term 10 Can Be The Most Expensive Insurance Plan You Ever Purchase!

Term insurance is an economical way of satisfying a short-term need, hence the name "term." Term-10 (or 10YRT - "10-year renewable term") is a commonly sought-out plan whereby fierce competition exists among insurers. Let's face it, it's generally one of the initially cheapest plans you can buy. Some companies will even provide smaller terms, such as 5 years or even 1 year!

 

To begin, memorize this all-important rule. It can save you thousands of dollars:

 

The longer you maintain your life insurance policy in force, the significantly more expensive the shorter terms become.

 

Consider this example to put things into perspective:

 

Have you ever gone to the hardware store to purchase a screwdriver? Of course, we all have! There are so many types, but more importantly, there are many screwdrivers of varying quality. You could spend $1 on a screwdriver, only to have the tip break half-way through your job. You could spend $7 for one that will last a couple of years. Or you can purchase that heavy-duty $15 tool that is guaranteed for life - or your money back. The $1 screwdriver doesn't seem so cheap anymore, especially since you keep having to buy a new one (or two) for every new job. And inflation will make sure that the $1 screwdriver today will cost you $5 ten years from now.

 

Now what do screwdrivers and life insurance have in common?

 

The more jobs you do, the more costly it becomes to use cheap screwdrivers. Likewise with life insurance, (here's that all-important rule again):

The longer you maintain your life insurance policy in force (or need the insurance), the significantly more expensive the shorter terms become (such as Term 5, 10, or 20).

Yes, that short-term policy can seem inexpensive today, but it will cost you dearly down the road!

And here's the proof. Take a look at the chart below. We chart the total cash outlay (your out of pocket cost) for a 40 year period for 4 different types of insurance plans: term-10 (10YRT), term-20 (20YRT), participating whole life with premium offset, and level-cost universal life. The plans correspond to a male, age 35, non-smoker, and a death benefit of $250,000.

 

 

Total cash outlay and funds for various types of policies
after being in force for 40 years.

 

Assuming he needs the insurance to age 75, his out of pocket cost during the 40-year period is approximately as follows:

• Term 10: $90,000, but no cash value
• Term 20: $75,000, but no cash value
• Participating Whole Life: $50,000, but has a cash value of $180,000
• Universal Life: $30,000, but has a cash value of $15,000. This cash value is also paid in addition to the death benefit. Should he die at this age, the death benefit would be $265,000 ($250,000 + $15,000)!

Wow! About $90,000 to keep renewing a 10-year term? Yes! That's because of the renewal rates. They can increase between 200 - 300% every 10 years!

 

The 20-year term is a slightly better alternative for him, saving about 20% or $15,000!

 

However, participating whole life not only saved him 50%, but he now has a significant cash value and can exercise many options, including increasing his retirement income!

 

Universal life was the most cost effective solution in this example, since the outlay was minimal.

 

Now, before racing to your phone to give us a call, demanding to purchase a permanent plan, keep in mind that the example above may suit a specific individual's circumstance. Everyone's needs are different, and that is why it is vital to sit with one of our experienced advisors to determine what solution will work best for you and your specific circumstance. Also keep in mind that the above figures can vary between companies policies, but the proportional costs between the types of policies are all similar.

 

Does this mean that we should never buy term? No, not at all. There is a place for everything. There is also a wealth of information being added to this web site on a monthly basis that can help you gain insight into determining what type of plan could work best for you.

 

Next page >

 

Top 10 reasons not to purchase a 10-year term insurance plan.

 

 

 

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Top 5 reasons to purchase a 10-year term insurance plan.

 

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