Most people acknowledge that owning life insurance is important for their financial planning. But even when most see the need, they either don’t purchase enough or none at all. In fact, according to LIMRA studies, over 41 million household have no life insurance and 48% of those with life insurance don’t have enough coverage. This may be due to an overestimation of the cost of life insurance. But life insurance is more affordable than you think.
In this article, we will go over a strategy, referred to as blended strategy, that utilizes two life policies, instead of one, to address those who need a cost-efficient way to keep up with changing goals in every stage of life. This strategy suits clients with a young family or mortgage payments and have an immediate need for a bigger life coverage amount but predict they will need less after a future event (such as youngest child’s graduation or mortgage payoff). This provides young families with an alternate solution in purchasing life insurance coverage and assumes the families need more coverage during the child-rearing phase and duration of mortgage terms. Once the insured have no more dependents and mortgage are paid off, the total life insurance coverage needed may decrease. Usually, less coverage is needed at the beginning (young with no responsibilities) and towards the end (older and retired with less responsibilities).
To illustrate the blended strategy, the table below lists the premiums for $1M coverage of a 30-year term life, Indexed Universal Life (IUL), and the blended strategy using both IUL and 30-year term life for an age 30 male client with a Preferred Non-Tobacco rating. Please note that the listed premiums are for illustration purposes and premium will vary depending on your age, health rating, insurance carrier, and other underwriting factors:
Life Insurance Coverage of $1M Annual Premium Cost (Monthly)
30-year Term Life $799.79 ($67.08)
Indexed Universal Life (IUL) $7,958.00 ($663.17)
Blended Strategy (IUL+30yr Term) $4,437.04 ($370.51)
At a glance, a 30-year term life’s annual premium is the cheapest at $799.79. However, you lose coverage if you don’t die during the 30-year term. Some insurance carrier may allow the insured to convert to a permanent life policy later, but premiums may be more expensive than if you had purchased a permanent life policy from the beginning. On the other hand, an IUL’s premium is more expensive but provides permanent coverage.
What if you need more coverage only during the mortgage payment period and need less once mortgage is paid off? You may request a face amount reduction with your insurance carrier, but limitations and issue may arise from this method. Consider the blended strategy if you need $1M to cover $500K mortgage loan for 30-year and $500k income for your family but will only need $500K permanent life coverage once mortgage is paid off. This will allow you to lock-in a lower premium rate for IUL at a younger age, while making sure you have enough coverage during the first 30 years that adjusts when you no longer have mortgage payments. Not only is your premium cheaper than purchasing the full coverage in permanent life (when you may not even need the full coverage after 30-years), but you also have coverage that will adjust after the 30-years term life is up.
While the blended strategy may help certain young families obtain the coverage they need, life is unpredictable and needs may change from what was initially anticipated. If your needs do change or this strategy doesn’t fit your concerns, there are other life insurance strategies and approaches that may solve your concerns better. We encourage everyone to consult their advisor before purchasing a life insurance policy and recommend a review of their policies annually or at least during any significant life events (i.e. birth of a child, retirement, etc.). If you’d like to learn more about insurance products, please contact Transglobal for assistance. Let Transglobal be a part of your life journey!
Author: Maya Wiglesworth
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