Foresight is defined as “knowledge or insight gained by or as by looking forward.” That sounds useful, no matter what the endeavor. But it is particularly useful when contemplating our life insurance needs.
When we are young and just starting out, it is natural to be optimistic about our future, partly because we probably have enjoyed at least a modicum of success in some endeavor, be it academic or in the work force. Without that success or optimism about the future, we might not even consider the purchase of life insurance.
But that optimism can be a double-edge sword. The future may seem so bright that we need sunglasses to see, but that youthful exuberance can sometimes blind us to the realities of life. In other words, we lack the foresight necessary to do proper long term planning.
Foresight helps with life insurance planning in several ways. First, knowing that there will in all likelihood be a need, even if that need isn’t current. Second, realizing that it will never be cheaper than it is today. Third, recognizing that the reason for which it is purchased today may not end up being its ultimate use. This last reason requires perhaps the most foresight.
The insurance buying public is admonished by those in the media like Dave Ramsey and Suze Orman to buy term insurance, because it won’t be needed in the future. Sure, that a possibility, but I don’t believe it’s a probability, because everything would have to break right for that to happen.
Based on my 30+ years’ experience in the life insurance industry, everything seldom breaks right. Usually something goes wrong, something that we didn’t anticipate back in our twenties (because we didn’t have the foresight). I say that because many people in their fifties and sixties ask me if it’s too late for them to buy life insurance.
So let’s say you have the foresight to buy a whole life policy when you are 30. Today, most quality participating whole life policies require a 15 year buy in, meaning out of pocket premiums must be paid for 15 years before the policy equity is sufficient to pay all future premiums (Note: the 15 year buy in is not guaranteed. Depending on policy performance, more or fewer premiums could ultimately be required).
Let’s further say that everything breaks right for you. You reach retirement age and there is absolutely no need for the existing life insurance. Had you listened to Suze and Dave, you’d have a lot more money, right?
Not necessarily. It would obviously depend on where you invested your money. But don’t forget, you would have had more to invest since age 45 because your outlay would have been zero since that time had you purchased the whole life at age 30. And the surrender value at age 60 would be approximately three times the amount of premiums you paid (this will vary based on gender, age, underwriting classification and policy performance).
In summary, life insurance is analogous to a parachute: better to have it and not need it than to need it and not have it. And it sometimes takes foresight to anticipate future needs.