The Power of Framing: A Term Insurance Example

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Written by Glenn Daily

 

This morning I was helping a client choose between a 20-year term insurance policy and a universal life policy. After he had eliminated the universal life policy from consideration, he mentioned 30-year term as an alternative. The 20-year term policy cost $6,835 a year, and the 30-year term policy cost $11,485 a year.

 
To make a decision, I asked him to start with the 20-year term policy and then consider this offer: For a nonrefundable premium of $4,650 a year for 20 years, he could purchase the right to buy a 10-year term policy starting 20 years from now with a guaranteed premium of $11,485 a year.
 
That deal did not sound appealing to him, even though it is equivalent to buying a 30-year term policy now. I have never seen a client choose 30-year term when I have framed the choice as the option to extend a 20-year term policy.

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