Beware: Level Term Premiums

No one likes wasting money, but I see this happening too often in a certain realm of the life insurance world.  It’s simple and understandable.  Here’s what happens.

As an example, I have a lot of term insurance and it was placed over time for various durations.  Most of it is 20 and 30 year term and this week I received notices from an insurance company for two of the policies.  One is for a $1 million policy, and the other for a $2 million policy. Next week the 20 year term period is up for both of them. For those who don’t know this, after their level term period, the policy doesn’t simply lapse, it stays in force at a much higher premium.  Of course, if you pay annually for the policy, you’d see this and likely not write the check. 

As an aside, I’ve seen this in business situations where the bookkeeper simply pays the invoices as they come in.  They assume the business owner would let them know if they shouldn’t pay it and the business owner assumes the bookkeeper would speak up if there was something that seemed out of line.  In one case, the company was paying over $20 grand annually for a policy with a $150,000 death benefit!

On the other hand, if you have your bills on auto-pay, like I do with just about everything, this could easily slide through without notice.  I hear you saying “Bill, of course you’d notice when you do your monthly reconciliation.”  Well, if you think I pay attention to my bank and credit card statements every month and cross reference all charges and expenses, then have I got something to share with you.

Here’s the problem; the monthly premiums on these two policies, from when I was 35 years old, are $45.45 and $83.25.  On November 11 the premiums for the two policies total $4,011.30… monthly! And the premium increases meaningfully on an annual basis. That’s a greater premium than if I converted the policies to permanent, lifetime guaranteed contracts. 

If you’re a responsible adult who has a handle on all aspects of your life at all times, then there’s no reason to care about this.  But if you’re a real person, then take note. I recommend putting dates in the calendar multiple places, years ahead of time.  If there’s a way to schedule a payment termination date when you initially sign up, then do it. 

Don’t depend on notices in the mail, or being contacted by the agent, or anything other than you putting in place guardrails yourself.  Maybe you’re better than this, but I see it all the time and I’d just like to remind everyone.  This isn’t one of the fancy strategies, but it could save thousands of dollars.

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