There are many times in our experience in the life insurance and financial services industry where people do all or a majority of their planning with this idea that things will be different 10 years from now. More to the point–my financial picture will look much different than it does today.
In other words, that 10 year term policy will be probably be just fine because by the time the term is up I'll have most of my debts paid off, my kids will be out on their own, and I just won't have near the need that I have today.
Unfortunately or fortunately depending on how you look at things…life has a funny way of happening and making your well laid plans seem like a distant dream.
Don't worry, it happens to us as well, you're not alone.
We're not suggesting that you shouldn't make plans for the future. Indeed you should, that's part of what's great about being a human being. We possess the ability to think rationally, to dream into the future and be entirely conscious of the entire process.
However, wouldn't it make sense to plan our finances in particular with more conservative assumptions? I know this is a drum that we like to beat…alot. And you're probably sick of hearing us talk about it but here we go again.
Like it or not sometimes, things just don't get better (financially). Or at the very least they don't work out exactly as we have planned.
Think back to the mid-2000s when Adjustable Rate Mortgages (ARMs) were all the rage. If you don't remember, they basically allowed people who couldn't have afforded a house at a particular price to magically afford it because an artificially low interest rate accompanied by loose financial underwriting of the loan.
Now, the idea was that 5 0r 7 years later (depending upon the length of the ARM) the loan would reset to a much higher rate. But at the point the price of the home will have increased, thereby your equity has increased and you have a higher income now that will allow you to qualify for a 30 year mortgage that you can afford.
That's a lot of assumptions.
Needless to say, we all know how well that plan worked out. The ARMs reset, people weren't making more money and the value of their property had fallen. So, they were stuck with their “reset” interest rate and saw their mortgage payment increase by 50% or more in many cases.
As for life insurance, many times we see people purchase a 10 year term policy because of the same flawed logic. They plan to have the car paid off, the kids out of school etc. by the time the policy term has ended. Not to mention, the premium is super low and almost inconsequential in most cases.
Instead, they get 10 years down the road only to have a new car payment that's higher than the one they had before, the kids are out of school but can't find a job and are living at home. That's just life, it happens that way all the time.
The problem is when you make these sort of instant gratification financial decisions, you paint yourself into a very uncomfortable corner.
We encourage you to be more realistic and plan conservatively. If things DO get better, you'll be in even better shape and that'll be just fine.
Brantley is a practicing life insurance agent and has been for nearly 18 years. After years of trying to sell like his sales managers wanted him to, he discovered that people want to buy life insurance if you actually explain the benefits.