People have a variety of needs when purchasing life insurance. Term insurance answers some of those concerns, and permanent insurance addresses others. I always ask clients, “Are you concerned about ‘if you die’ or ‘when you die’?”
- If you are worried about “if you die,” then you’re probably thinking about what happens to your loved ones if you die unexpectedly, or at a time that doesn’t fit with your life plan. In this situation, the conversation should probably start with term insurance.
- If you are concerned about “when you die,” then you’re probably thinking about when you die after a long and complete life, with concerns for your heirs and assets. When this is the case, I start the conversation discussing permanent insurance.
(See our blog Term vs. permanent life insurance: Which is right for you?)
However, the answer can often be yes to both concerns. So what should you buy first? Let me tell you about a friend of mine with three cars:
- He drives a small, four-door sedan as his everyday car. It’s leased, and he uses it for basic transportation to and from work and for trips around town. When the car gets too many miles on the odometer, he’ll just trade it in for another one.
- My friend also has a big sport utility vehicle on hand for when he needs it: family vacations, trips with his son’s lacrosse team, or when he has to haul something or tow a trailer. If he takes care of this SUV, it’ll last a long, long time. In fact, it has already logged over 200,000 miles and is still going strong.
- Finally, my friend has an old German sports car. This is his baby, his toy. He drives it only once in a while, but each year it’s worth more than it was the year before. I know he plans to keep it forever.
I realize not everyone is fortunate enough to have three cars, but if they do it’s a safe bet that each vehicle serves a different purpose. This is a lot like life insurance — many people have multiple policies, and usually each policy was bought at a different time during their life and serves a different need. It’s completely reasonable that a person would have both term and permanent insurance.
First and foremost, a person with no life insurance needs straightforward, inexpensive protection — for “if you die” unexpectedly. Think of the man with no car — what he needs most is simple, inexpensive transportation.
A first-time life insurance buyer might not be able to meet all needs right away. Instead, strive to meet the biggest need (basic, inexpensive protection) probably with term insurance. Once your immediate needs are met, you can come back at a later time and work to make your insurance plan more complete with permanent coverage — just like that family who buys a pickup truck or mini-van for when the car just isn’t enough.
Think about it — would you ever expect someone to buy a huge SUV or sports car for their first vehicle? Not unless money were no issue…and money is almost ALWAYS an issue. Don’t make that mistake with life insurance.
If you’ve already met your basic needs, then absolutely strive to complete your insurance program. But if you are considering your first life insurance policy, your first goal should probably be to meet your most immediate and basic needs. Your local independent agent can help you examine your needs and set your priorities.