Life insurance! We all need it only if we love others! It’s really that simple! If we love someone, or business, or a charity or organization, Life insurance is a guarantee by an insurance company that when you die, money will be paid to that beneficiary.
So who do you love? Who and/or what organizations would be at a financial loss when you pass away? Who or what would you like to leave money to as a legacy?
How much money will they lose in that event? Ask a professional to help with determining that number. The number is not related to the type of product or the cost. That number is a heartfelt need or desire. Is life insurance the best method to accomplish satisfying the need/desire?
Next the conversation needs to discuss the types of products.
The types and costs of the products are prolific! However there are basically only two types: Term and Permanent.
Term is low premium generally set for a set number of years (ie; term of years), no current cash value, generally with contractual guarantee to “convert” to a permanent policy without evidence of medical qualification.
Permanent Insurance is where the most confusion is. There are basically three type of permanent: Traditional Whole life (WL), Universal Life (UL) and Variable Life (VUL). All three offer permanence defined as able to stay in force to an advanced age such as age 90, 95 or 120, IF certain premium and cash value criteria are met and maintained for the entire period of time, according to the contractual functional requirements. This must be understood especially if choosing UL or VUL. There are performance risks based on economic variables in these two policy designs that are not present in the WL design. Of course, all insurance is based on the promises of the company and the company’s ability to remain in business and financially solvent.
Need is then the next important consideration: Do you want the coverage to last till that advanced age?Stated another way: Do you want that sum of money delivered to that beneficiary, tax-free, WHEN you die regardless of the age at which you die?If yes, the permanent is the only answer, if no, term might do just as well at lower premium.
The “Cash Value” of the Permanent products is a point of great debate and discussion and often the “sales sizzle” for choosing a particular product. In the 1990’s the VUL products, whose “cash value” performance was tied directly to the performance of stock market based investments, had returns of 40-50 and even 60% in one year! That provides a great deal of sale sizzle for sure! However, the following three years, the same product LOST 47%, 20% and then 5% before beginning a climb to recover the peak of the late 1990’s. The UL product is not tied to the stock market but to current interest rates. While losses of principal are not a risk, the interst rates are at risk. Some UL policies are underperforming. This means that the actual interest earned is below the amount neeed to keep the policy in force to the advanced age desired. If requested, compnaies will provide information demonstrating that the policy will lapse much earlier that age 90,95, or 100 as was origninally projected. This is due to the interest that they earned was much lower than originally projected and needed for the policy to perform. An inforce policy review bya fee based advisor is a prudent thing to do.
The point is that careful consideration of the pluses and minuses, the pros and cons of the product of choice comes into play. An independent insurance broker with an advanced degree such as ChFC ,CLU or CFP is a good choice of who to talk to.
The nature of the agents business model should be questioned as well. Is he an insurance professional, insurance salesman, or an advisor helping the client to buy life insurance coverage to provide the strongest possible guarantee that money will be delivered to his beneficiaries at death?
Remember: People don’t plan to fail, they fail to plan. Regular reviews make sure that the planning is up to date.