• David H. Kinder, ChFC

Do you have Death Insurance? Or Life Insurance? What's the difference?

Updated: Jan 24

In my professional opinion, term insurance (and group insurance through employers)... is Death Insurance.

It only has one benefit: a death benefit IF you pass away during the term and while the policy is in-force.

However, calling it "death insurance"... well, it wouldn't sell much, would it? So they call it LIFE insurance so agents and companies can SELL it.

As we hear the advice of financial securities advisors who focus on investments and rates of return in their planning (not to mention the financial entertainers on TV and radio)... they do talk about life insurance, but they really mean death insurance - because, if you should pass away too soon, your family needs the proceeds of such coverage.

Living Benefits came about in the past 10-15 years or so.

Many policies being sold today now have "living benefits". These living benefits pay out a benefit under three possible criteria:

- Terminal Illness: If you are expected to pass away within 12-24 months (depending on the policy) - Chronic Illness: If you are confined to a nursing home and needing care to help you with Assistance of Daily Living activities, a benefit can be paid out. - Critical Illness: If you are diagnosed to have had a heart attack, stroke, or cancer that would affect your life expectancy, a benefit can be paid out.

Sounds more like "dying, but not yet dead" benefits than "living" benefits.

So these policies can pay out in the event of death, terminal illness, chronic illness, or critical illness.

Pretty depressing conversation to me, right? This, to me, is why term life insurance is really mislabeled. It could be called "Death and Dying Insurance"... not Life insurance.

Don't get me wrong: I'm not 'knocking' term life insurance. These benefits ARE important... but they're not "life insurance and living benefits."

I'd like you to think about it a little bit differently: Think of term insurance as an "option to buy permanent coverage" - just like a stock option is the option to buy the underlying stock. But unlike a stock option, at least you have the protection in place until you decide to make that decision.

So, where is the LIFE in LIFE INSURANCE??

Well, it's not in the pure protection contracts out there. Term insurance has its place, but it's not going to do much more for you than death or dying benefits.

If we properly fund a cash value contract... there are MANY benefits you can get for doing so.

What if YOU could be the ultimate and greatest beneficiary of your life insurance policy? Wouldn't you want to at least know about something like that?

Here are a couple of my blog posts that talk about that:

The Laughing Banker

What is the Capital Equivalent Value of Life Insurance in Retirement?

Here is a great 10-minute overview of life insurance:

So, if I were to re-name Life Insurance... what would I call it?

I have called it "Investment Grade Life Insurance" in the past (and I still do), but that primarily discusses its funding levels, not necessarily everything it can do. (I've also seen a formal complaint against an agent where part of the results of the complaint was that that particular agent would stop referring to life insurance as "investment grade". While that may not apply to me specifically, it is something I keep in mind.)

I would probably call a properly funded life insurance contract something like:

The Incredible, Flexible, Foundational, Tax-Exempt, Cash-Accessible, Lifetime Wealth-Building, and Generational Wealth Transferring Life Insurance Contract.

Not too catchy (and way too wordy), but it would attract more attention for people who would WANT it.

A prominent speaker in the life insurance industry made these statements:

"Don't ever get caught in the dilemma of thinking that you have to compete with life insurance being an investment. It's not an investment. That's demeaning to life insurance. Life insurance is a flexible foundational product that allows you to do multitudes of things on behalf of prospects, clients, and businesses."

"Would you rather be rich? Or would you prefer an absolute guarantee that you would never be poor? What if we could do both faster than you had ever thought possible?"

My final question to you would be this:

What if YOU could be the ultimate and greatest beneficiary of your life insurance policy? Wouldn't you want to at least know about something like that?


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