My wife and I were recently home in Atlanta for the holidays. So, I immediately called one of my old college classmates to see if he wanted to get together for a bite to each, but he told me that he couldn’t because he already had a lunch meeting with an insurance agent. My friend was upset that his wife had scheduled the appointment with the insurance agent because he felt like he already had enough life insurance. Below are three things that I told him to keep in mind and remember during his upcoming meeting.
You May Already Have Enough Insurance Coverage
You may already have enough life insurance coverage thanks to group policies that you have through your work. While everyone’s needs and circumstances in life are very different, many financial planners recommend using the rule of thumb to purchase enough insurance that is equal to ten times your annual income. While my friend did not have ten times his wife and his annual income in life insurance coverage, he also does not have much in the way of insurable needs thanks to no children and a paid for home.
Whole Life Is The Insurance Agent’s Bread And Butter
I am a big fan of term life insurance. There are not many instances when a person, especially a young person, should invest in whole life insurance. But, since whole life insurance policies pay the highest commissions for insurance agents, these policies are pushed hard on the unsuspecting and uninformed. Term life insurance can be purchased for a small fraction of the cost of whole life insurance. A consumer can do a lot better by saving the difference and investing it. For example, if whole life insurance costs a person approximately $100 per month and term costs only $25 for thirty years for the same amount of coverage, an insurance buyer can invest that $75 per month for the next thirty years and have over $110,000 to show for his or her savvy financial planning.
Don’t Forget The Coverage For Your Spouse
Many young couples forget to adequately insure the wife. When the husband continues to be the primary breadwinner of a family, the family can become blinded by insuring only him, neglecting the wife. Not adequately insuring your spouse especially when there are kids involved can be devastating should the unthinkable loss of a wife and mother happen. Who will care for the children? How will the widower pay for daycare if the children are young? How much income will the family lose with the loss of a spouse? These are often forgotten things that should be considered when discussing the amount and type of adequate life insurance with your insurance agent.
No matter how many free meals your insurance agent gives you, you cannot forget that he or she is there to sell you a financial product. The problem is that you might be walking into a sales pitch for a type and amount of insurance that you do not need. Potential insurance purchases must be careful when considering how much and what type of insurance the buy. The best thing that a consumer can do is head to your meeting with your insurance agent as informed as possible.
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There are many questionable assumptions made here and I won’t argue that in many cases term insurance should be considered before whole life insurance but here are some things to keep in mind. People lose their jobs and they lose their group insurance plans. People leave their jobs and retire from their jobs and their group plans either stop or reduce their benefits or cost too much to continue them. This must always be considered. I also find it hard to believe that you can find a whole life insurance plan that will have the same coverage for a term plan with 1/4 of the cost that won’t change. You also don’t mention that most whole life policies contain cash surrender values and other values that you can access. You also don’t get to choose when you die so planning a 30 year investment based on “buy term and invest the rest” philosophy isn’t the best plan.
The best way to proceed us to meet with an insurance broker who can offer you a range of solutions from different companies that meet your needs as you go through the stages of life. Even better, meet with a financial planner and not someone who tries to sell you something at your first meeting.
Term life is the only product 90% of us need. I agree that the Insurance agent is going to try to up sell you to whole life because it pays them more up front and residual. A large whole life will give the agent a 50% or more commission and a good residual every year that you continue to pay. Buy a 20 or 25 year term and then invest the monthly difference into assets and you will be well on the road to being financially free.
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