Too many young professionals fall into the trap of buying term life insurance when they're young assuming they'll purchase permanent (cash value building) insurance when they're income increases. While this approach may make sense from a logical perspective, in reality most will wake up when they're age 60 wishing they 'bit the bullet' when they were younger.

It never fails, about once every week while speaking with both retired clients and clients getting ready to retire, topic of life insurance comes up. Of course, chatting about risk profiles and rates of return is more fun, but the '600 lb. elephant in the room' is unavoidable. Their term insurance guarantee period is running out, and they still want life insurance...what to do? Buying term at age 55-65 is expensive, it won't last longer than 20 years, and health status isn't what it used to be. What to do? I help them through the process of acquiring insurance, but inevitably, the comment, "...I should have bought some whole life when I was younger..." is expressed.

The Myth
When you're just starting out, it's tough. If you're lucky, you've found a good job which is forming a career. Maybe you have some college loans, maybe you don't. You're starting a family, you're saving for the down payment on the house, you already have 2 car payments. You recognize the need for life insurance to protect the family, but you can only afford the cheapest insurance. You purchase term. It's inexpensive, you can get it for 30 years, and by then, the house will be paid off, the kids will be done with college, and you'll have so much savings and retirement assets, that you really won't need life insurance past age 60. It makes sense, but life has a funny way of getting in the way. It just doesn't happen like that.

Even if you or your spouse don't lose your job along the way, the likelihood of keeping a 30 year mortgage to maturity and not refinancing it is very low. Even if you're a good saver, the likelihood that the kids will be off on their own immediately after college is decreasing with every sluggish economy. And even if, your income increases significantly over the next decade, the likelihood that your expenses increase by more than income raises is almost a guarantee. While baby formula is expensive, it's cheap compared to feeding a teenager. While refinancing that mortgage may lower your payment, homes have a way of needing up-keep and replacing things like HVAC units, roofs, and flooring. Maybe you'll want to finish the basement or rip up the deck in favor of a patio. The biggest flaw I see is the lack of thought given to how expenses and lifestyle tend to increase at a much more rapid pace than income.

The Reality
The last bear market crushed your retirement accounts. 2000-2010 is widely known as the 'lost decade' from an investment perspective. Historically, bear markets occur every 7-10 years. Kids are living with their parents after college at an ever-increasing rate. Your health at age 60 isn't what it used to be at age 30. You're working, still. Your spouse is working, still. You see it every day at Walmart...grey haired seniors working. Do you think that was in their plans at age 30? The reality is that the need for life insurance is now ever-present in retirement (or semi-retirement), yet the cost may be prohibitive.

The Facts
Whole life insurance is more expensive than term. It is a long-term commitment. But, think of the decision this way: if term life insurance wasn't around, you'd figure out a way to make it work. You'd make the sacrifice so that your family is not only protected today, but long into the future. The fact is that we don't know what the future will bring. If you're lucky enough that the future brings prosperity, then the equity that builds in a whole life policy provides flexibility. However, if you're like most, life will throw you a curveball every now and then. How you prepare yourself today, will determine how you live tomorrow.

Can't afford whole life now? Figure it out. You can't afford to not get it.