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Shopping for Life Insurance? What is the Purpose of Having Supplemental Term Built into the Design?

Updated: Dec 21, 2022

One of the biggest regrets my parents had was that they never invested in life insurance. When my dad became ill and his treatment lingered for years, the medical bills added up and ultimately depleted about one third of my parents’ assets. Had he had a well-designed insurance policy, much of his long-term care costs could have been covered. The same thing happened when my mom became ill; we spent down her assets to pay for necessary long-term care. The result of this mistake was that my dad always dreamed of leaving a legacy for his children and grandchildren, and when it was all said and done--there was very little to pass on to the kids after final debts were paid. We children didn’t really care --nor need a legacy of cash, but it was his wish that didn’t get satisfied.

I think the stigma surrounding life insurance is often negative and well justified in many cases, because of the lack of education. Not only is there a lack of education among the general population, but there are some limitations placed upon agents depending on whether they are captively engaged in the business or acting as independents. When an agent is captive, he or she can only sell consumers specific products, and often there is not much flexibility in the design. For example, is the agent offering supplemental term insurance in the design of the policy? And if not, why not?

First, it’s important to note how agents get paid a commission when they sell an insurance policy. There are several factors that go into this calculation, and the commissions are paid to the agent by the carrier.

A lot of times it’s a one-type -fits-all approach, but that is not serving the client’s best interests.

Insurance has costs that are passed onto the purchaser. Depending on the way the policy is designed, costs will be higher in the beginning 5-7 years and then taper down. One way to reduce the costs is to include supplemental term insurance for the first say 7 years and then have it drop off. There are IRS guidelines that must be followed to ensure the right amount of insurance is being obtained in relation to the premiums.

To answer the question why some agents do not include supplemental term in the design is because another name for supplemental term is non-commissionable term.

This means some agents are willing to design a policy that keeps costs down by adding supplemental term, but the agent receives no commission on the term portion or for designing the policy this way. Why would an agent do this? Some agents feel strongly that the relationship with the client is a lifetime commitment. In doing the design this way, keeping costs down, and in turn increasing tax-free income distributions during retirement years, it is in essence following the golden rule. One is far more likely to build more relationships this way, and it’s a win-win for everyone.

Regardless, life insurance is a valuable protection for families and businesses. Choose an agent that has limitless options and ways to design your policy to meet your specific needs. Peace of mind and the added knowledge you will be able to cover end-of-life expenses is priceless. Imagine being in control of what happens to you, your family, and your assets.

Reach out to us to learn more about protecting your family or business.

There is no cost to explore your options, but the cost of doing nothing could be extremely high.

For more info, email us at or call 775-365-9429

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