Monday, October 18, 2010

Term or permanent policies?

Whenever you write about the insurance market, the one thing you must always commit yourself to is the truth. So many people set out to sell and will bend their ethics to make the sale. This site stands in the middle, acting only as a gateway to the market. It's always your decision to buy. This leaves us free to give you clear guidance. So, let's start with current economic reality. As you will have noticed, we are still in a recession. No matter what Washington may try to tell you, the unemployment situation is bad and likely not to get any better over the next six months. Although the repossession situation has slightly slowed now the extent of the scam over the documentation has been revealed, everyone with a home is still struggling to find every month's installments. Household budgets are seriously under pressure. Middle-class Americans are voting with their bank balances and the number of insurance policies has been falling steadily. This is what happened in previous depressions/recessions. People decide to risk insuring themselves. So, given the current state of the economy, the majority of people who buy insurance are buying term policies. As an aside, we should note the total value of the insurance market is unchanged. The falling value of sales to the middle classes is being offset by sales of permanent policies to the wealthy. During a recession, it becomes even more tax advantageous for the rich to divert their money into insurance policies. This is a perfectly legal way of getting the best investment returns with the least tax liability. The wealthy always find a way to keep their money. In an ideal world, everyone would buy permanent life policies. The cash value offers a buffer against inflation and allows all policy holders the chance to see their money grow. But, with money tight, the more logical choice is to get your foot in the door with a term policy. This gives you and your dependents cover while you weather the economic storm. However, unless your finances are really stretched, you should not buy the basic term policy. You should opt for either a renewable or convertible policy. As the names suggest, these require the insurer to renew or to convert the policy into a whole or permanent policy when you can afford it. Thus, once you have life insurance in place, you force the insurer to continue the cover. The better option is the right to convert into a whole or permanent policy. Note this is a positive right even though there may have been a change in your health. So long as you have been paying your premiums on time and in full, you can upgrade and take the additional value of the cash sum. Obviously, if your finances remain rocky or your family circumstances change, there is no obligation to convert. But this "privilege" keeps all your options open - a good thing when dealing with life insurance companies. Suppose you did nothing now. Your family circumstances change and you then want a policy. A medical examination shows health problems. Now you are shut out of the market. With term policies being relatively cheap, you benefit from having a foot in the door.

0 comment:

Post a Comment

equity loan, home loan, fireproof file cabinets, first aid kits