Life insurance gets a bad rap. I don't think the problem is with the life insurance contracts themselves, but more with the way they are sold. If you felt pressured to purchase it through a convincing conversation that promised the moon and the stars yet left you a tad bit uncomfortable...I'm talking to you.
The unfortunate situation is that most people don't find themselves in the scenario promised. The policy gets canceled, sometimes after paying thousands of dollars in premiums, before the promise of a financial windfall to your loved ones is ever realized. A disturbing fact published by zebra.com is that only 1% of term life insurance policies actually pay out their purchased death benefit. I knew it was low, but not that low.
Now, let's be real here for a moment. Nobody actually wants their insurance contract to pay out probably because nobody actually wants to die. And those that are fearful of dying tend not to qualify for life insurance. And this is how the game begins: young, healthy individuals are talked into buying policies with the promises of big payouts, and not with the reality check of what a lifetime of premium payments will look like. Illustrated premium payments may be in their budget today but may not be in their budget five years from now when the demands of a growing family or loss of employment become reality.
You can also explore permanent insurance that have the ability to generate dividends that will cover your premiums if the financial environment of the policy goes according to plan. (Key word: if) The marketplace also offers policies that are paid up at a certain age or have spousal/child riders on the main breadwinner's policy for a very low cost. Remember, the life insurance agent's commission is directly reflected on the amount of your premium so you must advocate for yourself when it comes to finding a policy that is sustainable.
Later in life, the desire for insurance may become more of a desire and less of a sales pitch. The unfortunate situation is that many older people have a chronic illness mixed with a healthy dose of their own mortality. When they apply for insurance, they are welcomed with higher premiums if they can even qualify at all. They will wish they had kept that life insurance policy that their brother's dad's college roommate sold them thirty years ago as a mutual fund with a free physical.
And when the twilight of life comes, many assume that they will have enough assets to compensate for a lack of insurance thus relying only on their company benefits and never purchasing individual insurance. While I have seen that play out favorably for many families in my career, I've also never met a family who turns down an extra fifty thousand dollars on the saddest day of their life to pay off the car.
So, what's the solution?
Purchase life insurance for the right reasons (to provide a death benefit) at a reasonable premium (something that is an easy lift for your family budget) with the knowledge that this may be a part of your cash flow plan for many, many, many years to come. Don't fall for the sales pitch of avoiding the tax man for passive income, playing the stock market with a safety net or my personal least favorite: a replacement of your 401(k) at work. Life insurance, when sold correctly, provides a death benefit to your dependents that replaces your income since they depend on it.
Life insurance isn't scary when used correctly- it can be what stands between a family and total financial ruin.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
Kimberly Enders CFP® CWS® CERTIFIED FINANCIAL PLANNER®
Enders Wealth Management
37800 Van Dyke Ave, Suite 125
Sterling Heights MI 48312
www.enderswm.com
#kimenderscfp
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