You expect me to just say, “because term is less expensive than permanent.” That’s true, but it’s not the whole story. The bottom line is you can afford to be covered with term and a lot of us cannot afford to be covered with permanent.
What does that mean…”you can afford to be covered…?” It means this. A lot of us who are early to mid-career, married, with children can afford an appropriate amount of life insurance IF it is term. Let me say it a different way. Most of us have some life insurance, but we aren’t covered.
Let’s look at an, unfortunately, not so hypothetical situation: The primary breadwinner in your house makes about $80,000 a year. There are two children ages 15 and 11. One day something happens (a car wreck, cancer, a heart attack) and they are no longer with us, but they had a $500,000 life insurance policy to protect the family. That’s great, that is something, but they really weren’t covered. There was $169,000 in debt and after that is paid off that leaves $331,000.
Clearly, living the lifestyle $80,000 a year provided will cause that remaining $331,000 to disappear quickly. Cutting back on lifestyle still won’t make the money last much longer and when college is thrown in…there just isn’t enough coverage there. If we put that money in mutual funds and only pull out 4.5% a year to live on (so that there is a fighting chance the money will last until or through retirement of the surviving spouse) that’s only an income of $14,895. That just doesn’t work.
What is this family going to do for living expenses? What kind of mess has the family been left in because this breadwinner thought $500,000 was a big number?
You can take all this with a grain of salt because I sell life insurance and I want to sell you more. The thing is I have seen this scenario up close and personal. When I saw it I only had about as much as this primary breadwinner. I went out and tripled my coverage. What are you going to do?