Reply to Term Life Insurance vs. Convertible Term Life Insurance

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[quote=Anonymous]Why not buy both?  This is similar to what another poster wrote.

Think about it this way.  Your insurance needs will probably be subject to two trends over the next 30 years:  Your need will slowly rise, because your income and expenses are rising.  The counter-trend, is that it will also decline slowly as you save for retirement, and in bigger chunks as you pay for your children's education, until it goes to near zero at retirement.

So what you probably need is a lot of insurance for the next 20-25 years, and then less insurance for the 5-10 years after that.

With that in mind, try pricing out scenarios where you have the convertible policy do the "heavy lifting" during its cheaper first 20 years, with a 30 year term policy for less.  Like, maybe a 75% to 25% split.  Then when you get to year 20, you can reevaluate: Is the 30 year policy enough to carry you through until retirement, or is it worth keeping some fraction of the convertible policy (check - many term policies will allow a one-time reduction) for the next 10 years or longer?  Or will you need some life insurance past age 80, such that it is worth converting some amount of it and hanging on forever.

As an aside, you should also go on a site like intellequote and get some numbers.  Term policies (most of which are convertible to some degree) are really a commodity product, and there is heavy price competition.  Doing this will help you make sure the rates you were offered are competitive.  You might see other policy options there that provide better building blocks for a strategy like the one I described.

As another aside, I am also generally skeptical of permanent life insurance policies.  My bet is that you won't end up converting and that term will be fine for you.    Remember, you pay a price for the right to convert, baked into the term premium.  And you will NEVER convert the full amount of a large term policy, so you're really just paying for a bigger option than you need.  Might be worth trying to price out that Age 80 Term policy (which I otherwise like for you because it is cheaper for the first 20 years) without the conversion option, and then splitting THAT one into two policies, one smaller one with a conversion option, and one larger one without.[/quote]

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