Should you Own or Rent (Your Life Insurance)?

by Tom Tousignant

in Blog, Financial Safety, Refinancing, Wealth Building

Most everyone thinks about whether they should own or rent their house in Charlotte.   You should also consider if you should own or rent your Life Insurance.

Here is the difference:

1. Employer supplied Life Insurance is Rented.  You lose that ‘lease’ when you leave that job.  If your health changes, you may find yourself unable to rent new insurance and you could be stuck without protection you need or desire for your family.

2. Term Insurance is also Rented.  With Term Life Insurance, you pay premiums for a specific period of time. While you are paying the premiums, you have insurance coverage.  Once the term expires, so does your insurance.  With term Life Insurance, once you stop making the ‘lease’ payments, you no longer have the insurance.  In the case of company supplied insurance, when you stop working for that company, they quit paying the ‘rent’ for you. 

3. You own Permanent Insurance.  This insurance can either be Whole Life, Variable Life, or Universal Life.  The key difference is that this insurance doesn’t quit on you when you leave a job or when a term expires.

Most people should have a combination of both types of insurance – Permanent and Term.  Just like your house – it’s pretty common to own your primary residence, and rent your vacation spot.  Since you only rent some insurance, it is usually cheaper to rent than to own.  Rented insurance makes it easy to get a lot of coverage for a lower cost.  This is particularly useful for younger families when they are starting out – there are lots of expenses, but the need for the insurance is usually at its greatest.  So, rent some insurance while the cost is low and the need is high, but also buy some permanent insurance for the long term.

As a rule a rule of thumb, I usually recommend permanent insurance to cover the mortgage balance.  This way, as a minimum, your family could always own the home outright if the insurance was needed.  Over time, most permanent insurance will start to build up ‘cash value’, just like a home you own will start to build up equity.  I’ve run several scenarios and what I found is that a properly designed permanent life insurance policy will always pay off the mortgage, and after the 30 years of the mortgage, the cash value can be greater than the amount of the original mortgage.  Compared to a rented Term Insurance policy that will expire about the time a mortgage gets paid off, a permanent insurance policy’s cash value can be a valuable source of retirement cash for a homeowner.

If you are able to benefit from refinancing your house right now, you can do your family a great service by using the monthly savings on your mortgage to make sure you have enough life insurance to protect what is important to you.  If you need to talk with an insurance professional, shoot me an email – I am happy to recommend someone for you.

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