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What is the Best Type of Life Insurance?

What is the Best Type of Life Insurance?

| January 03, 2019

So the story goes, Cinderella gently places her foot in the glass slipper and the fairytale that follows is amazing.  Life insurance can be a lot like the glass slipper where everyone else in the land tries to cram, wedge, and squeeze their foot into a slipper that just doesn't fit, but when the right foot meets the right shoe - MAGIC!

The question "what is the best type of life insurance", often comes with good intent, but the typical advisor will focus on a single product feature or price while not considering the plan as a whole. I urge you to think a little deeper than what may first come to mind when evaluating a good life insurance policy (or portfolio of policies).

Life insurance in all types term life, universal life, or whole life as an example, simply contain words that promise to provide a benefit if something like death, disability or long-term care takes place. Frankly, ANY policy or policy type is supposed to do exactly what the contract says it will do – nothing more, nothing less. Therefore first consider clients needs, desires, and wishes then match the policy (or policies) that can help them accomplish those outcomes.

Step 1 – Determine the Correct Amount of Insurance

Above ALL things it's paramount to get the amount of death benefit nailed down before you consider type of insurance. Some advisors use a needs-based approach while others use a human life value approach1. Both have subtle differences but if applied correctly will generally reach a similar conclusion.

Step 2 – Apply the Correct Type(s) of Life Insurance

Once an adequate amount of death benefit is determined, you should apply the right type of policy or types of policies to match the client's desires. Below are a few questions to help you evaluate client preference or needs;

  1. Is the Life insurance need for a specific time period?
  2. Is my client best suited for guaranteed2 features or can they manage market volatility?
  3. Does my client have a desire for cash build-up or simply death benefit alone?
  4. Is there a need for life insurance and long-term care insurance?
  5. Are there specific contractual agreements such as a buy-sell or notes in place? If so, how long will the current business owners own the business? To wrap up, both premium and features are always important to evaluate a policy, but alone neither price or contract terms will provide an adequate test for value.

       1The Human Life Value (HLV) Theory states that one should maintain life insurance equal to the present value of their expected future earnings. Life insurance companies place limits on life insurance available to consumers based upon this formula and have created age-based multiples of current income as a guideline. For example, a person in their 30s may be insured for around 30 times their annual income, 20 times for a person in their 40s and 10 times for people in their 50s. Age 60 and over about 1 times net worth.

      2All life insurance guarantees are based on payment of all required premiums and the claims paying ability of the issuing insurance company. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Ashford Advisors Inc. is not an affiliate or subsidiary of Guardian. Ashford Advisors Inc. is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor.