Insurance Planning Article

If you google insurance planning or use YouTube to conduct your research, you’ll see a plethora of pundits, advisors (licensed and unlicensed), planners, and of course insurance salesmen all vying for your precious eyeballs with the intention to sell you some type of insurance. Of the various types of insurance, property, auto, health, and life; it is easy to get overwhelmed by the options, choices, contracts, and caveats. In this quick read I am going to focus on life insurance and breakdown some essential tips to consider when thinking about life insurance; which if internalized will lead you to a better shopping and purchasing experience.

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Tip #1: Insurance is not an investment. With term, whole, universal index, etc. options out there; it can be easy to be convinced that your basic need for life insurance is being boosted by the inclusion of a cash value account that earns interest. In steps whole and universal index insurance options. You buy one of these policies and walk away feeling excited that you are not only providing protection to your beneficiary’s, but you’re also contributing to a savings account! Here’s the issue, insurance is not an investment. The purpose of insurance is to provide financial resources for your loved ones in the event of your untimely passing. For this simple need, term life insurance might charge you $40/mo for a $1M death benefit for a 10 year term (assuming you’re younger 25-45 and healthy). Conversely, whole or universal index life insurance will charge you anywhere from $250-$450 for the same level of death benefit. Granted, $100 is going towards your cash value account earning interest (mostly likely a safe 4-6%) and it is considered permanent life insurance so as long as you keep paying, you will also have life insurance, but the rest is going to, you guessed it, overhead. The insurance salesman’s salary, the company coffers, marketing to get more people to buy whole and universal index, etc.
 
Tip #2: What is the opportunity cost? When you look at buying term life insurance for $40/mo and investing the difference of $410/mo into the overall stock market using an S&P500 index fund which has an average return of 9% annually, the choice becomes a no brainer. You don’t need your insurance to act as an investment. It is a terrible investment for the majority of Americans, like 99% of them.
 
Tip #3: What is my time horizon? If the need for insurance is to provide financial resources to your loved ones in the event of your death, when will this need no longer be necessary? The answer is usually determined by your beneficiaries ability to be self sufficient, so aged 20 and older, or when your net worth has reached a level where you can self insure. If you’re worth $3M you probably don’t need to keep paying for the $1M death benefit… When you die, your family will have the means to bury you and take care of your outstanding debts. Life insurance is to get you from a place where you have dependents and your net worth is not sufficient to take care of them in the even of your death. Now, you can quickly calculate whether your term should be, 10, 15, or 20 years. If you’re a RINO, you most likely will won’t need life insurance after 20 years, removing the need to purchase anything longer.
 
Tip #4: Pay your premium. Do not let your term policy lapse or get cancelled unless you no longer need the policy. Failure to pay your premiums will lead to a cancellation of the policy. If you wish to reinstate the policy, you may need to go back through the health screening and who knows what your health situation could look like at that point (praying it’s healthier!).
 
I hope these tips assist you in your life insurance decisions. If you ever have any questions, please reach out to one of our financial planners by visiting our website and booking a free consultation!
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