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When we first started in this business we worked for firms that had insurance as their main product line. They encouraged us to do “financial planning” and investment management . . . but we’d darn well better be selling lots of insurance. There were monthly sales contests, quotas, and awards based on the amount of insurance we could sell. And weekly meetings with sales managers kept us on our toes. This was –and still is- common practice in the industry and, to our minds, represents the unseemly side of product driven sales in the financial services industry. You know . . . the assumption that everyone needs your product and -even if they already have it- they need more of it. Very early in our careers, it appeared that every financial analysis we did for clients (using the company software) revealed that . . . not surprisingly . . . the client needed much more life insurance. Of course, our company’s life insurance products were the best fit. Our experience was not unique. Life insurance was the product you lead with, because this was the product that made the most money. And this “product bias” is one of the major reasons we left that arm of the financial services industry. We sought a model where our interests and our clients’ interests were more closely aligned. So, at outset, we are stating that some life insurance sales may not put client interests first, and that you must be wary. But, we will also state that life insurance is a remarkable product when used correctly, and is something almost all of us need. We can also reassure you that most licensed life insurance agents are honest, well trained folks. Who Needs Life Insurance? Certainly married couples with or without kids, and those with debt; other adults who want to leave something to their family or a charity; and people who have large estates and want to use the leverage of life insurance to pay estate taxes. You can make a case for younger, single people to get some level of insurance, too, while they are healthy and rates are very inexpensive. But the overwhelming need is for couples, especially those with children. These are people who have generally built up debt with mortgages; they are trying to save for their retirement; they may be saving for educational expenses for children. If the income of one of the spouses was lost the family would be in dire straights and unable to meet all the obligations and realize the long term goals. Having proper life insurance in place keeps the remaining family unit on track. How Much Do I Need? Probably more than you have. Consider that most families – according to national studies- are having trouble saving enough as it is for things like retirement and college. Then, with a wage earner gone . . . it becomes a true crisis. Without enough insurance, perhaps the mortgage becomes too big a burden; you can’t save enough for college; and there is no way you can amass the huge nest egg you need for retirement. You may hear rules of thumb like “ten times earnings” quoted when referring to the coverage you need, but these can grossly distort what is really needed, as needs differ from person to person, from family to family. We suggest you see an independent CERTIFIED FINANCIAL PLANNER™ professional who can run the numbers for you. Depending upon your own situation, you may find that you need a million dollars in coverage, or more. Even a couple in their 50s or older may well need significant coverage if they haven’t got that retirement nest egg built up yet. Check it out. It’s important. What Type of Insurance is Best? Basically, this boils down to “Should I buy term insurance or a policy that builds cash value?” Term insurance is much less expensive . . . and for a reason. After the “term” (say 20 or 30 years) the insurance is gone. The insurance company is betting that you don’t die during that term, and this is why it’s so cheap (they are right most of the time). It builds no cash value, and the death benefit/face amount loses purchasing power due to inflation over that time (a $1 Million death benefit today will be worth less than half that in 30 years). Cash Value Insurance, often dubiously sold as “permanent insurance”, is much more expensive. This is because the premiums can build up cash within the policy and this can actually increase the death benefit and/or extend the policy well beyond what a term policy can do. To be truly guaranteed to last a long time and be “permanent” huge premiums may be required (be sure to ask about this). Some policies have cash value tied to a stock market index or investment sub-accounts, and these policies got hammered in the last year or so . . . with many policyholders finding that their “permanent policy” is not permanent after all and that they may need to pay even higher premiums for it to last. The Bottom Line. We can make a pretty good case that some people who don’t have large estates, who don’t desire to leave a “legacy” to family or a charity, or who are empty nesters with an adequate retirement nest egg may not need much –or any- life insurance (individual circumstances vary). But this isn’t most of us. Most of us do need life insurance; we also need more than we currently own; and term insurance can represent a very fair bargain in most cases. We like life insurance. It’s very useful, and we think it would be irresponsible for people not to review their needs, not to understand what they own, and not to increase the coverage if needed. Leaving your family in the lurch because you’re too lazy to check this out, or too cheap to spend an extra $50 or $100 per month (just a guess) is pretty sad. Make no mistake, this is a product that can be confusing in many ways, and we do maintain that it is important to get as unbiased an opinion as you can about what you need and what the best type of insurance is for you. We urge you to take out your existing policies and get them reviewed. We do review policies for clients and others referred to us, and it is usually an eye-opener for all parties. Taking this step, and being a savvy consumer might save you many thousands of premium dollars and might save you and your family from an unsettling surprise if what you bought is not what you thought.
Craig Pulliam and Michael Comstock are CERTIFIED FINANCIAL PLANNER™professionals practicing at 112 Westwood Place, Suite 310, Brentwood, TN. They own Premier Asset Management and are registered representatives and investment adviser representatives with/and offer securities and advisory services through Commonwealth Financial Network: |
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