• Stephen Gardner

Covering your whole life

There is a time and a place and a purpose for term life insurance but it can also cost a family big money. Let me explain. I speak with many people, both young and old, that want to own term insurance because it is cheap. I agree it is cheaper in your younger years, but it is unaffordable in your later years when you need it most. (this is on purpose)


Term policies are an excellent way to shift the risk of income loss due to early death over to an insurance company for less than $100 a month. However, as you get older and closer to the average death age, your renewal price will be ridiculously expensive.


Recently I spoke with gentleman that had a $1 million term policy that would last for 30 years and expire around his 65th birthday. He figured this would be great time to run out of coverage because he'll be retired and rich. His plan was about $120 a month or $1,440 a year. It's a great price for the million in coverage if something happens. Except the insurance company actuaries know that only 1 out of 100 people will die and they will make money on the 99 who live just in time to make their premium unaffordable. Its a system that has worked for a long time.


I ran a $1 million quote on this guy assuming age 65 and still having good health, it was $1,664 a month or $19,968 a year and would only cover him until age 75 or 10 years.


With the 30 year plan he will spend $43,200 over those 30 years and if he doesn't die (which we hope he doesn't), he'll get zero dollars back. With the age 65-75 plan he will spend $199,680 and if he hasn't died (which we hope he hasn't) he'll have exactly zero dollar to show for it.


I'm not saying term is bad, but you plan to live a long and wonderful life, right? Why not have something to show for it and something to pass on to your spouse or children or favorite charity?


This same guy told me he would not buy the insurance in his later years because that is way too expensive. I then asked him, what happens when you die the day after your 65th birthday and your policy is expired and you have no death benefit? He sat quiet for a long time and said he knows he wants to leave his wife taken care of and his children with something so maybe he would need to have a program in place.


When I first met him, he was about 51 years old and our plan was to put something in place that would cover his whole life, guarantee to be there for him and his family but wouldn't require paying a lot of money until the day he died. We built a great plan.


The plan we built had him placing $10,000 a year into a plan for just 10 years. At that point the policy would be paid up, finished, not more cost or payments for the rest of his life. Plus he would still be able to access that money during his life time for car purchases, vacations, medical bills or investing in real estate.


As you can see from the picture, after 10 years, he never pays another dime on his plan. Yet, it continues to grow nicely every single year. You can also see that his death benefit grows with him. The closer he is to old age and death, the more he has to bless his family with when he passes. He loved the plan.


By age 76, he's saved $100,000 and hasn't contributed to his plan in 15 years, but his plan has grown to $261,510 and his death benefit is $370,500. How would you like to give your family over $370,000 for only $100,000?


The plan doesn't stop there, unless he has passed. However, based on increased life expectancy, its highly probably this client will still be with us. If we jump down to age 85, his $100,000 has grown to $402,939 and his death benefit is $489,835.


Keep in mind, this policy is paid off. The insurance company isn't going to come back to him at age 85 and demand more money. His policy is in place and he will be able to leave an incredible tax-free lump sum of money. In case you have forgotten, the death benefit is income tax-free to his family.


If he lives to 95, he will have $605,170 in cash he could access if needed and $670,475 in tax-free death benefit he will pass on when he passes on. What a gift to bestow upon your family. This is called leaving a legacy.


I have to imagine there is a high level of peace and satisfaction to leave this world knowing you've left your family in a good place. I know my own grandfather felt good about knowing his sons would receive an inheritance, not have to worry about covering his funeral or how to get his final assets, taxes and bills settled.


Plus, this pool of money gives access to capital in your later years when you may need money for buying cars, paying for medical bills, surprising the family with a vacation, etc. This is preparation on purpose.


I like to ask a question that helps people think through this idea by giving it context. Let's assume you have a $350,000 home and on your 65th birthday you pay that house off. Decades of paying diligently towards the debt. Upon paying off the final payment, would you drop the home and fire insurance on this house just because it is paid off? The answer is no! You need to protect that equity and make sure your family is taken care of if something bad were to happen to the home.


Shouldn't it be the same with our retirement money and life insurance? Just because you've reached an older age, do you think you won't want to have that continued, protected growth on your money or that protection for your family? I know from experience, working with many people at retirement age or in retirement, that protecting their money and family have become more and more important. Unfortunately, banks and Wall Street keep this idea out of your head because they need your money in the market so they can skim fees off you.


There is a way to get a plan set up like this one in only 10 years and ensure you will have no extra costs or premium payments down the road. There is a way to build up a pool of money in 10 years to serve as your family bank for all car purchases, college planning, real estate investing, etc.


Would it give you peace of mind to start your retirement years with a paid off life insurance plan and a large pool of tax-free money you can use for major purchases later in life? For this client the answer was yes. If you are younger than this example then it may make sense to custom build a plan that you can put into for longer. After all, the more you place, the more you will have down the road. For those that discover this incredible strategy later in life, this is a way to pack decades of planning into just 10 years and then sit back and enjoy your golden years.

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