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Again, what is the best policy for me?
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There are no perfect solutions.

If a term life insurance policy expires without ever having paid a claim, were the premium dollars "wasted”? 

No. They bought peace of mind while the policy was in place and fulfilled your responsibility to protect your family.

But isn't a permanent policy a good long-term investment?

Over the long term, whole life and universal life insurance offers low rates of returns compared to the stock market.  Although many policyholders were pleased to own whole life during the market declines of 2008 and 2009--remember it's a marathon, not a sprint!

Variable life insurance offer equity-type returns, some with "guarantees".  The problem is these products are difficult to understand and the sales illustration can be misleading.

All types of permanent life insurance, whole and variable, come with high fees.   

 


Understand what each insurance tool can and cannot do and then make an informed decision as to which or which combination to purchase.

At PlanningforaFuture.com we like approaches that are easy to understand.  The insurance industry has created "Swiss army knife" products that try to do achieve many objectives with one product.  They tend to be hard to understand and more expensive than stand alone solutions.  We prefer the low commission structure and transparent pricing of term life to protect our families during our working years.

If you insist on permanent life insurance, please remember:

  • Like investing in the market, permanent life insurance is a long-term investment. Part of the reason that insurance companies can offer attractive guaranteed minimum rates of return is because they know you have committed your money for the long haul. (Just like a 10 year CD normally offers higher interests rates than a 1 year CD.) Additionally, they know that x% of policies will lapse because owners are unable or unwilling to continue paying the premiums.
  • During times of hardship it may be difficult to meet premium payments from cash flow and the policy may lapse. If you have built sufficient cash value you may be able to make premium payments via loans.

  • Tax-deferred growth is more valuable to those in high tax brackets than those in lower tax brackets.
  • In spite of attractive guaranteed interest rates, policy costs may make this an expensive place to save.
  • If you do diligently save, you should have other sources of liquidity.
  • Some state that consumers should buy term insurance for temporary needs (such as during the working years) and permanent insurance for permanent needs (such as final expenses). Savings or investments can also pay for final expenses. Furthermore tax laws and estate values change over time, making it very difficult to project what estate taxes may be in five years much less when the bill eventually comes due… hopefully very, very far in the future.

As a rule of thumb, most of your life insurance needs will be met by term insurance.  Many policies permit you to convert to permanent insurance in the future.

 

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