Without a doubt, one of the most frequently asked questions asked of us is “When should I purchase my next Life Insurance Policy?” But another related question, which is just as frequently asked, is “Why do I need to own multiple policies instead of just one bigger one?”
Here are the reasons behind the answers to those questions.
Few people are independently wealthy when they purchase their first Participating Whole Life Insurance policy (PWLI). And that means they typically are not in a financial position to purchase all the coverage they need currently, let alone what they will need for their future financial sustainability.
Statistically, each decade you live, you earn more money annually than the previous decade, according to the 2018 CNBC Income By Age Report. That means that between the 4th and 6th decade in your life you will most likely earn more money than you have earned any time up to that point in your life time.
Knowing this, it is unrealistic to try and purchase all the PWLI you will need for your entire lifetime during your 2nd or 3rd decade of life. It just isn’t feasible. Not because it wouldn’t be fantastic, but because you most likely don’t have enough money earned or saved to make that happen. Plus, you typically have more expenses that consume more of your annual income during those years.
But here’s the good news. The 2nd and 3rd decade of life is the best time to purchase Convertible Term Insurance (CTI). And that is because most Americans are in better health during their 2nd and 3rd decade of life than they will be for the rest of their life time.
With your better health and younger age, the cost of term insurance is an excellent bargain. And owing CTI guarantees you the option to purchase PWLI in later years with the good health rating you had when you were younger.
So, when is it the right time to purchase your next life insurance policy? It could be that you need to purchase two policies from the very beginning. Your PWLI policy, with an affordable and comfortable premium will start compounding in your favor immediately and your CTI will guarantee that you can purchase more PWLI later on as your income rises.
Large PWLI policies are great tools to have working for you. But, even if you can fund them all at once the IRS rules could make all that money and the growth the policy experiences taxable for you. So, the best way to overcome that is to fund each PWLI as it becomes affordable and comfortable for you to do so.
No two PWLI policies ever look the same, just as no two individuals ever look the same. Each policy is issued based on your health, your income, your net worth and a host of other things that are entirely specific about you. And that is why underwriting is so important. Underwriting makes sure that you get the best rating and the highest possible coverage with the dollar you are spending for PWLI. And of course, we want that dollar to produce as much guaranteed cash values as possible because cash value is what gives PWLI its living benefits to you.
Life is an epic event, not a dash. Planning today for the future will ensure that you will have what you need when you get there. And it’s never too late to plan for tomorrow if you want tomorrow to be better than today.