Growing into your life insurance

Did you know that the consumer advice articles like “Tips on Saving Money on Your Life Insurance” are extremely short-sighted? All they really do is advocate “save money and only buy the amount of term life insurance you need.”

There are several issues with this advice. While they do recommend the 5 to 10 times annual income rule of thumb as part of the life insurance needs calculation, and education costs; they never speak to increased income and increasing or changing needs.

Here’s an example. People buy term insurance to cover their initial mortgage. The thinking is “I’ll have this paid off before or by the end of the amortization period.”

Then, what happens? Life! Growing family, increased incomes, nasty neighbours or just itchy feet. Rather than paying off the mortgage, the owners decide to trade up and leverage the equity. They buy a bigger house that suits their new needs better. So, instead of paying off the mortgage they actually get a bigger mortgage that will go for an additional 20 or 25 years! And sometimes they do that 3 or 4 times.

Is selling Term Life insurance to cover your client’s current mortgage really doing the job for them?

Why not take some time and ask them where they see themselves in 5 years or 10 years? Where would they like to be living then? Will they have a mortgage? How much will it be? How old will the children be then? What will they be doing or needing at that age? And so on.

The chances are, barring a death or divorce, their world will materialize as envisioned. So saving them money means sell them what they’ll need in the future now because: