Justin White is one of the founders and managing partners of Life4Diabetes, a nationwide consumer organization that specializes in finding Life Insurance For Diabetics and other preexisting conditions.
I have diabetes and need life insurance. Should I get Term Life Insurance or Permanent Life Insurance?
This is a common question and, oddly enough, one of the most misunderstood aspects of shopping for life insurance. There are many opinions on this topic. However, choosing the right type of policy goes way beyond someone’s opinion of term insurance or whole life insurance. Make sure you can tell the difference. The right policy is chosen based on what you are trying to do, what your health allows you to buy and what you can comfortably spend. That’s it. Here are some easy ways to think about it:
Term terminates. In other words, it is temporary. It is designed to cheaply cover temporary problems. Only ~3% of term policies ever pay out because people tend to outlive them. They cover risk as inexpensively as possible and then expire when the risk goes away (at the end of the term).
Permanent policies never go away (as long as premiums are paid). They are designed to cover permanent problems such as final expenses or estate issues. Permanent policies are appropriate when it is imperative that someone receive the death benefit. These policies are more expensive because, unlike term, they are designed to actually pay a death claim. Term, as you recall, is designed to expire.
If you are young, married, have kids, have a mortgage and a limited budget, you probably need a term policy. If you are covering a loan or wanting protect your kids ability to go to college, term probably fits the bill. Why? Because all the problems above are temporary in nature. You can put a time frame on a mortgage or how long your kids will be school age. They are also the cheapest option and offer the most bang (protection) for the dollar. If you died next week, your family would need as much money as possible to carry on, right?
NOTE: If this is the type of policy you determine you need, pay close attention to the conversion options. This little discussed clause can become very important if you develop a condition that makes you not insurable later in life. These clauses have been weakened significantly in recent years. You need to know what to look for to preserve all your options in case you need them.
If you are older and concerned about final arrangements, you probably need a permanent plan. Why? Well, we have always heard that old adage that the “only certainties in life are Death and Taxes”, right? So, why would you cover a certainty with a “temporary” term plan? Final expenses are usually covered with a small face value whole life policy. Universal Life and Indexed Universal Life are examples of other forms of permanent life insurance. They can be used for any number of permanent problems ranging from different types of business insurance, estate planning, and even tax free retirement funding. Permanent policies are designed to last for your whole life. They are designed to be there and pay out when money is needed for inevitable final expenses and/or provide a safe cash accumulation vehicle.
Health will sometimes dictate what you can buy. Permanent policies can sometimes be easier to issue on people with health problems. Work with your agent to get a policy issued, work on your health (A1C, weight, etc) and make desired adjustments later.
In summary, consider a policy that solves the type of problem you have (temporary or permanent?). A qualified life insurance broker is best equipped to advise you on what type of policy will fit your needs, health, and budget.
Find a broker who specializes in life insurance for diabetics and other preexisting conditions who can guide you to the solution best for you.