“How to choose between term insurance and permanent life insurance?”
The young man smiled at the inquiry by his father. He was the middle son.
“I have been expecting this question, Father,” he answered. “I know that you and my older brother have talked about this at length.”
“Then you have had time to think about it,” his father replied. “Tell me your thoughts.”
The middle son knew his father was a man of ceremony.
Serious discussions required thoughtful attention, and thoughtful attention was prompted by ritual.
He took the initiative to arrange the tea service.
“I will prepare the tea for you, Father,“ he said. “But please forgive me for not joining you. I am a bit agitated by the question, and will not enjoy my drink.”
His father raised an eyebrow, but assented. “Then let us hope our conversation will lighten your mood.”
They sat at the table together. It was late afternoon, and in the waning sun the trees in the yard cast long shadows.
The middle son reflected on how the atmosphere of the yard, cast half in light and half in shade, matched his perplexity on the question.
He yearned to resolve this ambiguity.
A Perplexing Dilemma
Taking a deep breath, he began to explain his dilemma to his father.
“On the one hand,” he began, “My elder brother’s viewpoint makes perfect sense. Of course I want the highest yield from my payment. Of course I want to take advantage of the guaranteed benefit. This is common sense financial thinking.”
Indeed I recognize that I must keep the policy in force as long as I live in order to realize this value. And, I also know that I cannot predict with 100% accuracy my future needs for life insurance. It would then be wise to retain coverage into the latter stages of my life.”
His father nodded in confirmation, and waited for the son to continue.
After a pause, the middle son spoke again, this time with stronger emotion.
“But I have so many financial goals, Father!” he exclaimed. “I want to buy a house. I want to start a business. I need to put away money for my future. If I was to spend the money for all the life insurance I should have, I would have an insufficient amount left over for my other needs.”
He shook his head in frustration.
“To choose between term insurance and permanent life insurance pulls me in two opposite directions.”
A Strong Foundation
His father smiled in acknowledgment.
“I can see that this dilemma bothers you,” he said. “One good way out of this fix is to set priorities. Your elder brother did this. Let me ask you: what is more important than financial security? Think of your finances as a house. Your insurance is the foundation. Life insurance is the core ingredient of that foundation since it is the only claim that will be paid with certainty.”
Does it not make sense to make your foundation as strong as it should be?”
“Yes it does, Father,” the middle son replied. “It does.”
He shook his head ruefully. “I just don’t like the prospect of having a house with the best of foundations, but with walls and a roof of only average quality, if you know what I mean. There is more to life than security.”
He looked out into the increasing darkness. It definitely matched his mood.
His father peered into the dusk as well. Still keeping his gaze towards the horizon, he said to his son, “Sometimes you can find light within the darkness. Is it possible there is a middle ground from which you can choose between term insurance and permanent life insurance?”
The middle son raised his head and pondered this provocative question.
After a few moments of reflection, a smile appeared on his face.
Is Term the Answer?
“I am considering your point regarding priorities, Father. I know that on the one hand, I need to have a sufficient amount of coverage in force. At the same time, I have a number of expenses on which to spend my money.”
The middle of the road solution,” he continued, “would be a policy be high enough in face amount to cover my current and future needs, but low enough in cost to spare money for other products.”
That is called term insurance.”
His father turned his head from the darkened countryside and looked at his son inquisitively. “Term insurance? And would you be like everyone else and just drop it when the price goes up? Wouldn’t that defeat your purpose?”
“The Conversion Option”
The middle road between term insurance and permanent life insurance
The middle son rose to the challenge.
“No, Father!” he stated emphatically, “This would be term insurance that I could convert to a permanent product. It would be my intent and plan to do so.”
“And when you do so,” his father looked at him sharply. “You will have paid more for that permanent insurance because you will be at that time older than you are now. Will you still then be satisfied with your plan?”
He raised his tea cup to his lips as he waited for his son’s response.
“Yes I will, Father,” his son replied. “Yes, I will. For me, that would be a small price to pay to get the ‘house’ I want. To choose between term insurance and permanent life insurance means to take one, and then in time take the other.”
He looked relieved, and his spirit renewed.
“I will join you for that tea now.”