retirement planning - problem with term insurance

Is term insurance still the wise, financially-prudent move? Or is there a problem with term insurance that may put you and your family at risk?


For years, term life insurance has been considered the best way to go to protect your estate while also investing for retirement. Advocates like Dave Ramsey, Suze Orman, and Clark Howard continue to trumpet the advantages of term life insurance over more permanent life insurance options. And indeed, term life insurance is often a cost-effective and basic way to protect your family or your business for a limited amount of time.

But it’s that limited amount of time issue that can be the problem with term insurance for some people. According to Gallup’s annual Economy and Personal Finance survey, the average retirement age in 2013 rose to 61, up from 57 back in 1993. And the definition of “retirement” keeps getting stretch further and further as well. People may retire from their long-held corporate job, where they have retirement benefits awaiting, but they will continue to work in retirement, needing the extra income to pay for medical expenses, a desired standard of living, and the unknown length of their “retirement.”

A four-year increase to average retirement age in 20 years doesn’t sound out of line, but there’s another factor to consider. According to the Centers for Disease Control and Prevention 2012 report on Health in the United States, from 1960 until 2010, there has been about a five-year increase in our average life expectancy at age 65 – from 14.3 years in 1960 to 19.1 years in 2010.

And averages can be a little too comforting. Remember that these averages mean that half of the people retire after the age of 61, and half of the people live longer than 84 years old after reaching 65. So, if you couple these facts together – longer working years and longer living years – you discover a weakness in the normal term life insurance advice.

In short: the problem with term life insurance is that it stops. It’s only for a term. Whether it be 10 years, 20 years, even 30 years. It will come to an end. And the problem with term insurance is that you never know if you’re still going to need life insurance at the end of the term. Sure, if everything goes according to plan and your investments pay off on schedule, maybe you’ll be fine – plenty of money for retirement and an estate that can continue to provide for your family. But what if things don’t go according to plan? And your term insurance runs out?

Purchasing term insurance at an older age, with the likelihood of increasing health problems, can be difficult. Premiums can be astronomical, and that’s if you can even still qualify.

But permanent insurance has often been sneered at for offering a poor investment vehicle. The cash value accumulation of permanent insurance has often underperformed market returns and administrative fees have been viewed as excessive.

But that’s a dated philosophy at this point. Insurance carriers have responded with permanent insurance options that are not trying to look like investment vehicles, but are cost-effective plans for a permanent life insurance policy that can last into retirement and beyond with no expiration date like term insurance. Some permanent life insurance products allow flexible premiums that actually reduce as a person moves from their working years into retirement. Or even paid-up life insurance policies that remain permanent without the need for further premium investment.

Do you know how long you will have to continue to work? Is there life insurance that will protect your family throughout all your working years? How long will you live? Do you know that you will have life insurance that will protect your family after you die?

At Mountain Lakes Insurance, we work with a variety of clients with different life insurance needs. Often, we recommend term life insurance as an inexpensive and basic way to begin to protect your family and your assets. But often we have clients who have more complex needs, and need a cost-effective, flexible premium life insurance product that doesn’t have an expiration date like term life insurance. In those cases, we are able to recommend quality permanent life insurance solutions that are not based on accumulating cash value, but are simply designed for protection that will last without killing the monthly cash flow. Whatever your situation, the agents at Mountain Lakes Insurance can recommend a plan that will be tailored to your life’s situation.