Rethinking Life Insurance: Breaking Free from Industry Logic Traps

Let's tackle one of the biggest logical fallacies in financial planning: the idea that all life insurance decisions should be driven by needs analysis. This flawed thinking has led countless planners and their clients down unnecessarily complex paths.

The Simple Logic of Term Insurance

Let's start with what actually is need-based: term insurance. Here's the straightforward truth:

1. Take your income

2. Multiply it by 10-20 times

3. Buy term insurance for that amount

That's it. No complex calculations needed. Why? Because most families' insurance need is greatest when they're young and diminishes as they approach retirement. By then, they should have real assets, less debt, and independent children.

A 50-year-old with teenagers can get $1,000,000 of term insurance for about $120 a month for ten years. Simple solution to a big problem. Done.

The Industry's Logical Trap

Here's where the industry's logic breaks down: they try to apply the same needs-based thinking to permanent insurance. This is like using a ruler to measure weight – wrong tool, wrong approach.

The standard "needs analysis" for permanent insurance is a logical fallacy because:

- It assumes needs and wants are the same thing

- It tries to calculate an uncalculatable future

- It forces a false choice between term and permanent insurance

A Logical Approach to Permanent Insurance

Permanent insurance isn't about needs at all. It's about allocation of resources. The real questions are:

1. Is this financial instrument allocation-worthy?

2. Given limited resources, where does it fit in the hierarchy of financial priorities?

3. How does it compare to other tax-advantaged options?

The Time Factor

Here's where it gets interesting. Permanent insurance has two characteristics that demand early attention:

- High initial entry costs followed by long-term tax-advantaged accumulation

- Better underwriting and lower costs when you're young and healthy

This creates an intriguing opportunity: thinking about the family as a single economic unit.

A Family-Wide Strategy

Consider this logic:

- Younger family members offer better insurance economics

- Older family members often have allocation capacity

- Family wealth can be optimized across generations

- Early allocation locks in insurability and favorable pricing

This isn't about needs. It's about optimizing family financial efficiency.

The Role of Financial Planners

Here's how planners should approach this:

1. Handle the easy part first:

- Calculate term insurance need (10-20x income)

- Implement simple term solution

2. Separately evaluate permanent insurance as an allocation decision:

- Consider family-wide opportunities

- Evaluate against other financial priorities

- Think generationally

3. Partner with insurance specialists for implementation:

- Let product experts design flexible solutions

- Ensure long-term service commitment

- Monitor performance and adapt over time

Breaking Free from Old Logic

The industry's obsession with needs analysis for all insurance decisions is a thinking trap. By separating:

- Need-based term decisions (simple)

- Allocation-based permanent decisions (strategic)

We create clearer thinking and better outcomes.

The Path Forward

Financial planners: free yourselves from the industry's logical fallacies. Stop trying to justify permanent insurance through needs analysis. Instead:

1. Handle term insurance needs simply

2. Evaluate permanent insurance as an allocation choice

3. Consider family-wide optimization

4. Partner with product experts for implementation

This is how you turn life insurance from a complex puzzle into a logical financial tool.

Remember: Just because permanent insurance isn't need-based doesn't mean it's not allocation-worthy. We just need to think about it correctly.