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Case study: Protecting the American dream

For new business owners, money is almost always tight. Generating income and investing as much revenue as possible back into the business is their top priority. That's why many of them initially choose term insurance to provide immediate protection at a cost substantially lower than permanent insurance, giving cash-strapped business owners pure protection of their business interests at an affordable cost. Term proceeds can help insure business continuation and shield partners from financial hardship.

However, unlike permanent insurance, term doesn't build cash value. And while the initial cost of term insurance is lower than the cost of a comparable permanent life insurance policy, the cost of term coverage increases over time and can become prohibitively high at advanced ages, while the premium for many permanent policies remains level.

Permanent life insurance can be a solid foundation upon which to build a long-term business plan because it guarantees lifetime protection for the business. A buy/sell agreement, the most common use of whole life insurance for a business, enables a company to continue to operate if one of the principals dies prematurely.

"These are just some of the reasons business owners are often better off converting their term coverage to permanent insurance when cash flow improves and their business is well established," says Nizar Ali, a Houston, Texas agent. "Permanent insurance provides the long-term peace of mind and security every successful business needs and deserves."

Many of Nizar's clients are recent immigrants who purchase gas stations or small grocery stores and then begin to work to make their American dream come true. Ali makes his clients aware of their need to protect their new venture with life insurance. He carefully educates them on the difference between permanent and term insurance, and then works with them to develop the best insurance solution for them at that point in time.

"Our clients realize they have permanent needs that term insurance cannot meet over the long haul," says Nizar. "We work with them to design a term insurance program that addresses these needs and fits their short-term budget, and then allows them to convert to a more permanent solution when the time is right."

Nizar's clients typically purchase $250,000 to $500,000 term policies to protect their business interests until their revenues increase, and they can afford a permanent solution to their permanent needs.

Three years ago one of Nizar's clients purchased a gas station outside Houston. Nizar met with his client and together they determined a $300,000 term policy would be the first step. Now, two years later, they are converting some of the policy to permanent insurance.

"I keep in touch with my clients on a regular basis and usually after a year or two, they see the value of converting to permanent insurance," Nizar says. "They quickly realize that term coverage will end one day, they're not building any cash value, and the term premium is for protection only."