“You can get $500,000 of term life insurance for as little as $30.00 a month”

OR

“A 50 year old man can qualify for $1,000,000 of term life insurance, for as little as $2.50 per day”

These are just a couple of ads I heard on the radio as I was driving back from LA last week and for the most part, they are true. Now the devil is in the details here, premiums for both permanent and term insurance are based on the health of the applicant, age. tobacco or non-tobacco and term insurance premiums rise the longer “the term” being insured (a ten year term policy is a whole lot cheaper than a thirty year term policy). The key words in both of the ads are “term life insurance” which is usually much less expensive (in the short term) than permanent and universal life policies.

If term insurance is always cheaper than permanent insurance, why would anyone ever buy anything but term? Well, the answer lies in why you are buying insurance in the first place. I like to equate it to leasing or buying a car, you can lease a $60,000 Mercedes for four years for as little as $600.00. To buy that same car, your payments would be $1,100.00 for the same forty eight months and that is with $20,000 down! The difference is you own that car at the end of the four years and that car has value, which you can keep driving with no payments the car pocket the money, with leasing you are really “renting” the car for a said period and at the end of period you give the car back and have start all over again. The key factor is how long you are going or want to keep the car. We drive a perfectly good 2008 Lexus Hybrid that my wife absolutely loves and that has been paid off for nine years. The “buy” option has cut our cost per mile to pennies on what a lease would have cost us.

So is leasing bad and buying good or leasing good and buying bad? It depends on your situation and the same goes for insurance. If your goal is things like mortgage protection, paying off debt or providing funds for your kids' education if something were to happen to you, or in other words things that are finite in nature, term insurance makes total sense. But for things like income protection, providing for a spouse, tax advantage retirement funds or passing on wealth to the next generation that are long term in nature. Permanent Insurance is a much better option and is cheaper in the long run. Permanent insurance cost more initially but builds equity and will NEVER expire.

The right solution is most likely a combination of the two. Remember, buy the right tool for the problem you are trying to solve, nothing more and nothing less. I sit down with all my clients and first determine their “insurable need” and second what is the product or products to get the best bang for the buck to provide protection for that need. The right approach is a “Protection Strategy not just a Life Insurance Policy(s)”.

Do it right and you will be laughing all the way to the bank!