Category: Insurance

The Difference Between Permanent Life Insurance and Term Life Insurance (and Why It Matters)

Posted on by Brian Colvert

Which to choose? If you’ve ever felt confused about the difference between permanent life insurance and term life insurance, you’re not alone, and today were are here to help you cut through the noise. When it comes to life insurance, few topics are more misunderstood or misrepresented. Many people find themselves signing up for a policy based on fear, a persuasive pitch, or a recommendation that doesn’t actually suit their needs. The good news? Understanding the difference empowers you to protect your loved ones without overpaying or being misled. Let’s dive in.

Listen Now:  iTunes |  Spotify | iHeartRadio | Amazon Music

What Is Term Life Insurance?

Term life insurance is exactly what it sounds like: coverage for a specific period of time, often 10, 20, or 30 years. If the policyholder dies during that term, the death benefit is paid out to the beneficiaries. If the term ends and the policy hasn’t been used, it simply expires with no payout.

Pros:

  • Affordable premiums: Term insurance provides the most coverage for the lowest cost.
  • Simple to understand: You pay for a set number of years; if you die during that term, your beneficiaries receive the payout.
  • Ideal for younger families: It covers you when you have the most financial obligations—mortgage, children, and debt.
  • Customizable terms: You can choose a term that aligns with your needs, like the length of your mortgage or years until your kids are financially independent.
  • Convertible options: Some term policies allow you to convert to permanent insurance later, without new underwriting.

Cons:

  • No cash value: Unlike permanent insurance, there’s no savings or investment component.
  • Expires: If your policy ends and you still need coverage, a new policy may be more expensive due to age or health changes.
  • No refund: Unless you purchase a return-of-premium rider, the money you pay into the policy is gone if you outlive the term.

What Is Permanent Life Insurance?

Permanent life insurance lasts your entire life, as long as you pay the premiums. This category includes whole life, universal life, variable life, and others. These policies often come with a cash value component that can grow over time.

Pros:

  • Lifetime coverage: Your beneficiaries are guaranteed a death benefit, no matter when you die.
  • Builds cash value: You can borrow against it or even use it to pay premiums.
  • Can offer tax advantages: In some cases, the cash value grows tax-deferred.
  • Flexible options: Some types, like universal life, allow you to adjust your premiums or death benefit.

Cons:

  • Expensive: Premiums are significantly higher than term insurance for the same death benefit.
  • Complex: Fees, interest rates, investment risk (depending on type), and policy rules can be hard to follow.
  • Lower ROI: Often marketed as a savings vehicle, but you may do better investing elsewhere.
  • Sales-driven: Many policies are sold with incomplete information about long-term costs or downsides.

The Sales Pitch Trap

One of the biggest problems in the insurance world is the sales pitch. Many permanent life insurance policies are sold using emotionally charged scenarios:

  • “Don’t you want to make sure your kids are taken care of, no matter what?”
  • “This policy builds wealth while protecting your family.”
  • “It’s a forced savings account with tax advantages.”

These statements can be true, but only in the right context. Understanding the difference between permanent life insurance and term life insurance is important. For many people, especially younger families, a term policy covers their needs more appropriately, while allowing them to invest elsewhere with higher returns and more flexibility.

Real-Life Scenario: The General

One particularly painful example is that of a retired general who, as a young enlisted servicemember, was sold a permanent life insurance policy. It sounded good at the time, but as years passed, he couldn’t keep up with the premiums. Eventually, the policy lapsed, and he had to pay money just to get out of it.
This is not an isolated case. Many financial advisors have stories of clients who unknowingly signed up for policies that made more sense for the insurance agent than for the client.

When Does Term Life Insurance Make Sense?

Term life insurance is a great fit when:

  • You’re in your 20s, 30s, or 40s
  • You have young children
  • You have a mortgage or other debts
  • You’re the primary income earner
  • You’re still building wealth
  • You’re looking for the highest death benefit at the lowest cost

Many people choose a 20- or 30-year term that lines up with their working years, their mortgage, and their children’s timeline to adulthood. A typical example:

  • Age: 35
  • Kids: Ages 3 and 5
  • Mortgage: 25 years remaining
  • Goal: Provide income replacement until kids are grown and debt is paid off

In this case, a 30-year term policy with a $2–3 million death benefit may cost a few hundred dollars a year. After 30 years, ideally, you’ve built enough wealth that insurance isn’t as necessary.

When Does Permanent Life Insurance Make Sense?

Permanent life insurance might make sense when:

  • You have a family history of medical issues and want guaranteed lifetime coverage
  • You need coverage for estate planning purposes (e.g., estate tax mitigation)
  • You’ve maxed out other tax-advantaged accounts like Roth IRAs and 401(k)s
  • You need a tool for legacy planning or charitable giving
  • You’re extremely high net worth and looking for a unique tax-advantaged vehicle

Even then, it should be carefully evaluated with an advisor, not just purchased because it “sounds good.” Also consider:

  • Trust planning: Permanent policies can be structured within irrevocable life insurance trusts (ILITs) to reduce estate tax burdens.
  • Business succession: Some owners use permanent policies for buy-sell agreements or to fund key person insurance.

Key Questions to Ask Before You Buy Life Insurance

  • What is the purpose of this insurance? Is it for income replacement? Paying off debt? Estate planning?
  • How long do I need coverage? Do you just need protection while raising kids and paying off your house, or lifelong?
  • Can I afford this long-term? Many permanent policies are expensive and can lapse if not maintained.
  • Have I maxed out other savings tools? If not, insurance shouldn’t be your investment strategy.
  • Do I fully understand the fees, structure, and returns? If it sounds too good to be true, it usually is.
  • What happens if I need to cancel or pause my policy? Know the surrender charges, risks of lapsing, and options for flexibility.
  • Is the recommendation coming from a fiduciary advisor or a commission-based sales rep? This distinction matters a lot.

Life Insurance in a Holistic Financial Plan

Life insurance is not a standalone decision. It should fit within a bigger picture of your overall financial life.

  • Budgeting: Ensure the premium fits your cash flow.
  • Investing: Term insurance frees up funds to invest in retirement accounts or taxable brokerage accounts.
  • Debt management: Life insurance can ensure debt doesn’t burden your loved ones.
  • Legacy goals: Permanent insurance might support charitable gifts or leave behind wealth.
  • Retirement: Term policies typically expire as you near retirement, ideally when your need for income replacement is reduced.

How to Review Your Existing Policy

If you already have life insurance, it may be time for a checkup. Ask yourself:

  • Does this policy still fit my current needs?
  • Have my income, debts, or family circumstances changed?
  • Am I paying too much for too little?
  • Have I been properly informed of all the features and downsides?
  • Could I switch to a more cost-effective or appropriate policy?

Work with a fiduciary advisor to evaluate your options before canceling or replacing any policy.

Final Thoughts:

What’s right for you now that you’ve reviewed the difference between permanent life insurance and term life insurance? There’s no one-size-fits-all answer, but for many people, term life insurance provides the protection they need at a cost they can afford, especially when they’re just starting out, raising a family, or growing their career.

Permanent life insurance has a place, but it’s more of a niche solution. If someone is pushing it on you before fully understanding your financial picture, that’s a red flag. As with most things in financial planning, the key is to stay informed, ask the right questions, and work with someone who’s willing to walk through your goals and your numbers, not just sell you a product.

Need Help Deciding?

At Bonfire Financial, we walk clients through life insurance options in a way that’s educational, not sales-driven. We’ll show you the actual numbers and help you choose what works best for your stage of life and financial goals. Schedule a call with us today!

Learn More About Choosing the Right Term Policy

If you’re ready to dive deeper into your options, check out our guide to the Best Term Life Insurance. It breaks down the top providers, features to look for, and how to get the most value from your policy.

The Hidden Risks, and Realities, of Insurance for High-Net-Worth Individuals

Posted on by Brian Colvert

b For high-net-worth individuals, wealth offers a sense of freedom, security, and choice. But with greater assets comes greater risk. While insurance is often seen as a check-the-box necessity, the truth is that many affluent individuals are unknowingly underinsured. This leaves them exposed to potential financial disaster in the event of a major claim.

Today we’re breaking down the hidden risks and how high-net-worth individuals can better protect their homes, vehicles, and lifestyles with the right insurance strategies. Drawing from a recent conversation with Jacob Morgan, a top 1% Farmers Insurance agent and President’s Council member, we’ll uncover the current trends, common mistakes, and smarter moves you should be making today.

Listen Now:

iTunes |  Spotify | iHeartRadio | Amazon Music

—–

Why Standard Insurance Isn’t Built for the Affluent

Most people begin their insurance journey by shopping for the cheapest premium. It makes sense when you’re starting out. But as your assets grow, that approach quickly becomes dangerous.

Standard policies often have coverage caps that don’t align with the true value of luxury homes, exotic cars, or high-end personal items. Additionally, claims service, deductibles, and replacement cost policies may not be designed for unique needs.

Jacob Morgan puts it plainly: “If you’re worth $10 million and living in a fire-prone area with a custom-built home, you’re in a totally different risk category. You’re not just another house on the block. You’re a one-of-a-kind risk.”

The Reinsurance Crisis: Why Premiums Are Skyrocketing

One of the key drivers of rising insurance premiums in recent years is the cost of   . Reinsurance is essentially insurance for insurance companies. When disasters like hurricanes, wildfires, and massive hailstorms happen, the losses get passed up the chain—and ultimately, back down to consumers.

In 2023 alone, the insurance industry lost $43 billion. By mid-2024, the industry had already hit that figure again. Reinsurance markets are tightening, especially in high-risk zones like:

  • California (wildfires, earthquakes)
  • Florida (hurricanes)
  • Colorado (hail, wildfires)
  • Texas (wind, flood)

These macro pressures are pushing premiums higher, and in some cases, making coverage harder to find altogether. For high-net-worth individuals, this means more scrutiny and significantly higher costs to insure homes in these areas.

Why Wealthy Individuals Are Hit Harder

Affluent clients often find themselves on the losing end of insurance pricing, but not by accident. The very things that make luxury living so desirable—beautiful locations, expansive properties, custom features—also make them high-risk to insure. Insurers are increasingly scrutinizing these properties and passing along higher costs to cover the growing risks and potential losses. Here’s why:

  1. Aggregation of Risk: Insuring a $20 million mansion is not the same as insuring ten $500,000 homes. A single loss can devastate a carrier’s bottom line.
  2. Location, Location, Risk: Luxury homes tend to be in scenic, exclusive areas—on the coast, in the mountains, or in rural getaways. These spots also happen to be more vulnerable to disasters and far from emergency services.
  3. Luxury = Higher Replacement Costs: A tile roof on a million-dollar home isn’t just more expensive—it can be exponentially more expensive. Add in custom cabinetry, imported finishes, and high-end tech, and you’re looking at rebuild costs far beyond what standard policies account for.

Common Insurance Mistakes High-Net-Worth Individuals

Despite having the means to afford proper protection, many wealthy individuals unknowingly fall into common insurance traps. These oversights often stem from a set-it-and-forget-it mentality, or from applying the same logic they used in their early financial lives. Let’s explore the most frequent mistakes and how to avoid them.

  1. Staying with the Same Policy for Too Long: Jacob shares that before he opened his agency, he had the same policy for 12 years without ever reviewing it. He later discovered major gaps in coverage. Your lifestyle evolves—your insurance should too.
  2. Chasing the Lowest Premium: While it might be tempting to price-shop insurance the same way you do flights or hotel rooms, this can lead to inadequate coverage. Insurance companies don’t create all policies equally—especially when it comes to endorsements and exclusions.
  3. Low Deductibles on High-Value Assets: Affluent individuals often keep deductibles low out of habit, but this can cost you thousands in premiums. Raising deductibles on high-value items like homes and luxury vehicles can significantly reduce your annual costs while making sense for your cash flow.
  4. Overinsuring Market Value Instead of Rebuild Cost: Many homeowners assume they should insure their home for its market value. In reality, insurance covers rebuild costs, not what Zillow says your home is worth.
  5. Skipping Liability and Umbrella Coverage: As wealth grows, so does visibility and the likelihood of being targeted in a lawsuit. Umbrella policies can be an inexpensive safeguard—often as little as $500 per year for millions in added protection.

Smarter Insurance Strategies for High-Net-Worth Individuals

If you’re building or preserving significant wealth, your insurance strategy needs to be just as sophisticated. It’s not only about coverage amounts. It’s about who manages your coverage, how often it’s reviewed, and what protections are in place when the unexpected happens. Here are some high-impact strategies that can dramatically improve your risk management approach.

  1. Work with an Agent Who Specializes in Affluent Clients: A knowledgeable agent can tailor policies based on your asset mix, lifestyle, and risk exposure. For example, a home in Vail, a yacht in Miami, and a classic car collection all require different layers of coverage and carriers that understand the nuances.
  2. Bundle Strategically: While bundling home and auto can provide discounts, sometimes splitting carriers is the better choice—especially if you have properties in multiple states.
  3. Review Policies Annually or After Major Life Changes: If you renovate your home, buy a new vehicle, acquire art, or add a vacation home, it’s time to review your policies. Even if nothing major changes, plan on an annual review to ensure you’re not overpaying or undercovered.
  4. Customize Coverage With Endorsements: High-value personal property often needs specialized endorsements. Think: collectibles, watches, wine collections, sports memorabilia, home offices, or smart-home systems. Avoid assuming that a standard policy fully covers these items.
  5. Embrace Higher Deductibles Where It Makes Sense: As Jacob suggests, if you can easily afford a $2,500 or $5,000 deductible on your home or car, consider increasing it. Use the savings to enhance your liability limits or invest in umbrella coverage.
  6. Invest in an Umbrella Policy: Liability claims can come from car accidents, injuries on your property, or even social media defamation. Umbrella insurance picks up where your primary coverage stops, providing extra peace of mind.

Jacob noted that in his book of business, only two umbrella claims have been made. Both were worth more than the premiums collected from hundreds of policies—and they saved the clients from serious financial harm.

Final Takeaway: Don’t Set It and Forget It

Insurance for high-net-worth individuals is not just a formality, it’s a strategic pillar of wealth protection. Unfortunately, too many people spend decades building wealth—only to risk it all on outdated or inadequate insurance coverage.

Here’s what to do next:

  • Review your current policies with a trusted agent
  • Assess your liability exposure, especially if you have multiple properties or vehicles
  • Ask about umbrella policies, higher deductibles, and tailored endorsements
  • Re-shop or review annually, especially if you live in a high-risk area

As Jacob Morgan put it, “Why would you go your whole life building wealth, only to lose it over a $500 insurance decision?”  Well said.

Ready to Protect What You’ve Built?

When it comes to high-net-worth insurance, working with the right expert makes all the difference. Jacob Morgan and his team specialize in protecting complex, high-value portfolios—from luxury homes and vehicles to vacation properties and beyond. Whether you’re reassessing your current coverage or building a more strategic risk management plan, Jacob can help ensure your insurance is aligned with your wealth.

Already working with us on your financial plan? Perfect. We’ll collaborate directly with Jacob to create a seamless, coordinated strategy that protects both your assets and your future.

📞 Contact Jacob Morgan at (719) 576-2638
📧 Email: [email protected]

Just mention this blog/podcast so he knows we sent you!

Is Insurance an Investment?

Posted on by Brian Colvert

Is Insurance an Investment?

The simple answer is no. You don’t view car insurance as an investment, so why would life insurance be?

If insurance is not an investment, why do we have insurance? Simple, it is for protecting your assets and for protecting your loved ones.

Think about this… You have car insurance and homeowner’s insurance, but why?  It’s so you will be covered if you get into an accident, or are stuck in an unreal hail storm, or if the water heater breaks and floods the basement, or in the unlikely event your house catches fire.

In all these cases people purchase insurance to make sure that they are not going to have to pay the full amount to get back to whole after something terrible happens. That’s it.

We have yet to meet a person who bought car or homeowners insurance as an investment thinking they were going to make money or get returns off the insurance.

Why is life insurance different?

It’s so that your loved ones are taken care of if something happens to you.  If you are no longer here, who or what is going to replicate the income you generate? Most people say that if they pass on early or unexpectedly they want their family to be able to maintain the same quality of life.

The important questions to ask yourself are:

  1. How much do I need to achieve the goal?
  2. What is the most effective and inexpensive way to achieve that goal?

There are certain factors to think about that will help determine what kind of insurance to buy and how much. These factors include your time frame, health, and resources (other investable assets).

When you ask these questions you are looking at insurance from a needs-based approach. It helps you find a solution that fits your particular situation.  When acting from this point of view, very rarely does a whole life or universal life product make sense.  Term life insurance normally gives you the greatest amount of coverage for the least amount of money.

Why do people say life insurance is an investment?

Well, have you ever gone to see a movie and walked out a little disgruntled saying “Man, the best parts were in the trailer, why did I even go?!”  That is the feeling most people get when they buy insurance as an investment. The story or sales pitch was better than the product and the only winner was the one selling the insurance.

In the end, people often say “my advisor said it would be like a forced savings that I can borrow against, but I have no idea what it is” or “they said it grows tax-free or something like that” It is one thing to waste your money on a $15 movie, it is another thing to waste thousands of dollars on insurance you think is an investment but in reality doesn’t meet your needs.

If your financial advisor has tried to pitch you insurance as an investment, you don’t have a financial advisor, you have a salesperson. 

Insurance is not an investment.

Here are some facts on whole life insurance, universal life insurance, portfolio or permanent life products that should help bring some perspective:

  • They cost a lot more to get the same amount of coverage as a term policy.
  • There are hidden fees.  You can find them buried in the 8 pt. font 20+ page contract. Are you up for some “light” reading?
  • These products pay big commissions to the insurance salesmen, which they do not have to disclose to you.
  • If you borrow against it, your death benefit will be reduced, and your loved ones will be left with less.
  • If you do mix investment with insurance, i.e. you ‘invest’ in insurance products like endowment or money-back plans, your returns are bad, and limited at best. Usually less than 3 or 5%.
  • When you die with a cash value, they only pay out the face amount, not the extra money you’ve put into it. Your extra investment vanishes- they keep it.
  • And finally, you are borrowing the money so there is interest to be paid, which means you pay even more.

These products have many moving parts and are quite convoluted. Many clients come to us asking for help to understand what they bought from someone else and how it works.

In most cases, we end up having to call the insurance company to get full indoctrination of the product so that we can understand that if this happens, that happens, and so forth and so on. Whole life and universal life products simply have too many variables.

Insurance unfortunately is unnecessarily complicated, but it doesn’t need to be.

If you understand that insurance is not an investment, the picture can come into focus. Term life is more than often the best solution for the lowest cost. The best way to buy it is through a broker or advisor who shops several companies to get you the best deal. Which, by the way, is what we do.

We’d love to discuss this more with you and truly find a solution that meets your needs, so give us a call and join us around the fire.

Interested in listening to a Podcast on all of this? Tune in here!

or listen anywhere you stream Podcasts

iTunes |  Spotify | iHeartRadio | Amazon Music

Thank You For Your Subscription

You’re in! Thanks for subscribing to our monthly newsletter. We will be sending you market updates, financial insights and inspiring travel ideas soon but in the meantime check out our blog, join us on Instagram or pop over to Pinterest.

Your Appointment Request has been Received

Thank you for reaching out! We are excited to learn more about you. Someone from our team will be in touch shortly.

Sign up now

Join us around the fire for monthly market updates, financial insights and inspiring travel ideas.

.

Sign up now

Receive tips

Give us a call

(719) 394.3900
(844) 295.0069
[email protected]