Can Blended Life Insurance Provide the Best Protection at Lowest Cost?Submitted by Keystone Financial Services on March 25th, 2015
The good news is that life insurance rates continue to decline and people are buying more term life coverage than ever before. The bad news, is that many people are recognizing that the need for life insurance last a lot longer than most term policies. After the term policy expires, the cost to buy a new policy can get expensive. Worse, if you become uninsurable, you may not qualify for the coverage. But, premiums for permanent life insurance are a lot higher than term which may prevent some people from being able to afford it. The best solution for people who would like to maintain life insurance protection for the long haul may be a blended policy that combines permanent coverage with term coverage.
Know the Limitations of Term Life Insurance
Term insurance is temporary insurance, meaning it is designed to expire, presumably after you no longer have a need for coverage. Yearly renewable term doesn’t necessarily expire, but if your need for insurance continues, the premiums will increase until they become very expensive. While term insurance can be very inexpensive, it your need for insurance doesn’t go away, it could cost you much more to keep the coverage in later years. With some permanent policies and their ability to accumulate tax favored funds, the total cost of ownership over 25 to 40 years can be much less than a term policy. Here are four reasons why you might need to consider permanent life insurance coverage:
Your family has a history of medical illnesses, diseases, or conditions. If there is even a remote possibility that you could inherit a medical condition, you need to look ahead to the possibility that you may become uninsurable at some point. So, when your term policy expires, and you still have a need for life insurance, you may not be able to get it, or it may be prohibitively expensive. Permanent insurance protects your insurability.
Your spouse is unable to work. This could be due to medical reasons, or maybe, he or she had to leave the workforce for a period of time, and they aren’t qualified for employment that could generate sufficient income to meet the family’s needs. In many cases, the spouse’s need for income never goes away, and, if sufficient assets have not been accumulated, they will suffer a hardship.
You build a successful practice. Businesses are built to last a lifetime or longer, and for the family it becomes the lifeline. Also, if you have partners, they also need protection if they want to be able to continue the business without you. Generally, term-type coverage can’t economically address the needs of business owners.
The Blended Solution
The idea behind the blended plan is to split the coverage between permanent coverage which increases over time, and term coverage which decreases over time, so that at some point, the life insurance coverage is 100% permanent. The initial premium is significantly lower than a regular permanent life policy, and, in most policies, it remains level. Depending on the performance of the cash values in the policy, a blended plan may, at some point in the future, be able to pay for itself either with the dividends that are generated or with the earnings from the cash value.