Insurance Tip #4: Blending term and whole life coverage into one policy is the secret your agent doesn't want you to know
Let's say you have determined that you need "permanent" insurance. Probably, you made this decision because you are convinced that you will hold the policy for a very long time, maybe even up to the time you will die.
However, as an educated consumer, you know that the commission on many of these products can be 100%, or even more, of the first year's premium. Obviously, this is going to cause the policy to accumulate relatively little cash value in the early years, to compensate for this high selling cost.
What if you could get the best of both worlds: permanent insurance with high initial cash values?
The good news is that you can.
The bad news is that your agent probably won't tell you about it because it may clobber her commissions.
A blended policy combines term and whole life coverage into a single policy. Over time, the term portion of the policy is replaced with whole life. Generally, the term portion has a lower commission rate.
The bottom line is that a blended policy can result in lower premiums, higher cash values and higher death benefits because of lower sales costs.
Blended insurance is not right for everyone. The death benefits build up more slowly than with a traditional whole life policy that has a fixed death benefit. However, it is vastly underutilized because it is not aggressively sold.
If you are considering insurance, ask your agent about blended policies. Unfortunately, there is a broad range of these polices and determining which one may be appropriate for you can be somewhat complicated. If the amount of the premiums at issue justifies the cost, consider retaining the services of a fee-only insurance advisor to assist you. See the Bonus Tip for details.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).