Young people in certain professions, like doctors, lawyers and accountants, are frequently offered term life insurance policies from professional associations at cut-rate prices.
These policies offer easy sign-on terms and little in the way of burdensome paperwork and premiums can usually be paid electronically. These policies offer an attractive dividend or refund payment, thereby softening the expense of premiums.
These benefits come because young people in established professions are such good risks: they’re healthy, lead active lifestyles while avoiding danger (they often have growing families) and have dependable resource streams. This is a great way to acquire term insurance – but there’s a hitch. When the inevitable happens and the customer gets older – particularly when crossing that Rubicon of 40 – the policies can become prohibitively expensive.
It works out pretty well until that nerve-wracking birthday – the rates are low, the refund feels good and the five-year upward adjustments are paltry. After 40, costs spike painfully. For example, at age 45, the cost of $1 million in insurance can triple compared to what the party paid in his or her thirties. Every five years after that, the cost goes up dramatically.
If you want to hold this sort of policy after age 40, it makes good sense to sign up for a non-associated variety covering a specific period – a 20 to 30-year premium would cover the period to retirement and keep costs under control. In this type of policy, the death benefit remains intact after age 75, whereas in association policies the benefit is cut by half at that age. Association term life is for the youngsters who are just starting out. Once you’re established, it’s time for a strategic switch into something more suitable.
For more information, please read:
Is Association Term Insurance Really a Good Deal? | Wealth Management