Is The 40 Year Term Policy the Best Kept Secret of Life Insurance?
If the thought of life insurance puts you to sleep, I completely understand. Honestly, you should congratulate yourself for even clicking on the headline! But knowing about how a life insurance policy is important, and being proactive now will pay huge dividends in the long run.
As boring as life insurance is, it is essential if you’ve got a spouse or child counting on you. Life insurance is the only financial instrument out there that will protect them if something were to happen to you.
Even if you aren’t the breadwinner in the relationship and stay home to take care of the kids, think about how your spouse would handle being a single mother or father without you. Your job probably provides some life insurance, but it’s not enough for anyone who doesn’t live by themselves, and disappears as soon as you quit or are forced to leave your job.
Other reasons to consider a life insurance policy in your 20’s:
- Do you own any real estate? You may want to consider a policy if you have a piece of property and want to make sure that your beneficiaries aren’t forced to sell it immediately if they can’t afford the payments.
- Do you provide ongoing assistance to someone else? If you are the caretaker of an elderly person, you definitely need to purchase a life insurance policy. If something happens to you, the death benefit lump sum can be used as a salary to hire your replacement.
Ownership of personal life insurance is at a 50 year low, partly due to Millenials getting married later, having fewer children and not having as many mortgages that need life insurance protection. If you are a millenial with no aspirations of children or owning a house, you may still want to get some protection into place for your significant other, especially if you are planning to have a bigger family down the road. If none of this applies to you, a personal life insurance policy is not a must have.
The Good News
The good news is that picking the right life insurance policy when you’re younger is usually pretty easy and inexpensive.
Contrary to what the average agent trying to sell you the retirement benefits of whole life may tell you, the vast majority of working 20 somethings only need a term policy. (The exceptions include having a special needs child, making an enormous amount of money, or needing estate liquidity)
If you are part of the 99% that doesn’t qualify for an exception – keep it simple and stick with the term policy. Now there’s just one more question – how long a period do you choose?
The most popular term policies are 10, 20, and 30 year term policies. The 30 year policy is often the gold standard for most younger folks – but if you are only 25 when you get a 30 year policy, you’ll still be only 55 when it expires. You probably still have more than 10 years of work ahead of you!
There’s an even longer term policy out there:
What if you wanted to guarantee insurance coverage and lock in your premium payment all the way up until retirement?
The insurance industry might spend more money than any other trying to attract clients – you’ve probably absentmindedly sat through commercials on the Radio, Cable, Youtube and Facebook every day. I guarantee you that after reading this article, you will notice them everywhere for the next two weeks.
The one thing the insurance industry doesn’t advertise however, is the 40 year term life policy. In fact, only two well known companies sell a 40 year policy – AIG and Banner (known as Legal and General in New York).
You would think either of these companies would use this policy as a competitive advantage but it’s actually one of the least well known types of life insurance policies out there. I would bet that most life insurance agents don’t even know about it.
Most online life insurance quoting software doesn’t feature the choice of a 40 year quote either – You have to ask for it by name!
Why is it such a well kept secret?
A common refrain is, “If it’s so good, why aren’t more companies offering it for sale?”, which is a totally fair question!
- The maximum age for that you can even apply for a 40 year policy is low, at only 45 years of age if you are a non smoker, and only 40 years if you use tobacco. Many people who need life insurance make the mistake of not purchasing it until later in life – often after they would even be able to qualify for a 40 year term. This in turn limits the potential amount of customers for a 40 year product.
- It’s more expensive than a shorter period term. Most of the advertising you see regarding term life insurance policies mentions $500k or $1 million dollar policies for less than 25 dollars a month. They do this by showing an example for a 10 year term policy for 30 year old female,who is in impeccable shape.
The amount of 30 year old females who have a clear medical history and are in great health but won’t make it to age 40 are very, very low – so a company can sell them a $1 million policy for not very much and still be able to make money.
Even if you buy a 40 year term at the ripe old age of 18, you are still guaranteed to have the same coverage and pay the same amount until you’re 58.
By their very nature, 40 year term policies go much further into your potential lifespan (which is why you should get one) but that pushes up the cost a bit over a shorter term policy.
The good news is that you don’t have to be worried about being 40 or 50, and then needing to find a policy that will cover you for another 20 years, if you can even qualify for it at that point.
How much is it going to cost you?
Yes, it will cost you more for those extra 10 years, but it should be less than you think. See the chart below, and remember, it’s a lot easier to be in great health when you are young!
If you’re in good shape and don’t smoke here are some example rates, current as of 1/1/2019.
|Age||$500k policy, |
|$500k policy, |
|$1 million, |
|$1 million, |
Was it less than you expected?
40 year term makes a lot of sense if you want to buy life insurance once and have a policy that will cover the rest of your working life. It allows you to insure your income so that in case anything happens to you, the people who are dependant on you won’t have their lives financially upended.
By getting the coverage you need when you are young and healthy, you are doing your future self a huge favor and saving a ton of headaches and money by getting it done now and not having to worry about it ever again. Life insurance is not going to get any cheaper as you get older, so if your family needs protection from the loss of you or your income, it is important to act soon.
Michael Spelman is a Certified Financial Planner and independent life insurance agent serving clients nationwide. He runs www.thegulguy.com, a life insurance blog focused on providing timely advice to consumers about Term and Guaranteed Universal Life policies. You can reach him directly at [email protected]