Confusing information about selecting life insurance is normal.
The reality is that there is never one type of anything that fits every situation. For example, would you like to see your barber or hairdresser and have the same haircut as the man or woman before you? When you go out to eat, is there only one option to select? How does it make you feel when you are offered only one option?
Now let’s relate that back to the life insurance industry. There are proponents out there that say 100% of the time, and your best option is to “buy term and invest the rest.” That’s an excellent option for a lot of people, but is it right for EVERY PERSON?
On the flip side of the coin, you have the “Whole Life is the only way to go!” people and the “don’t ever buy whole life! Buy universal life!” people. Both Whole Life and universal can be a great type of insurance but, I think you’re getting the point there is no such thing as a one size fits all solution.
There are benefits to temporary life insurance and benefits to permanent life insurance. The goal is to work with an insurance specialist that is not biased toward one solution over another.
An excellent independent insurance specialist is like a detective. Their first job is to discover, through a series of questions’ what your “problem” is and then create a customized “solution” to solve that issue. Their second job is to educate you throughout the process so that you understand the issue and exactly how that solution is going to solve it for you.
No different from a detective solving a crime:
Step 1: the crime(problem)
Step 2: find clues (discovery questions)
Step 3: educate the prosecutor so they can prosecute the crime (education & solution)
The other way to help you as a consumer, understand what solutions are being presented is to understand the basics of temporary versus permanent insurance.
Now in the temporary category, the first one, Group Life, which is what you get through work and disappears 31 days after you quit, leave, or retire. The second one is called Term life, which only goes for some time. For example, if you started a policy at the age of 30 and it’s a 30-year term, then that means it expires or goes up exponentially in price at age 60. The last one is simple; it’s called accidental life, which means that it only pays out due to death in a covered accident. The benefit of all of the temporary insurance is that they are typically much less costly than permanent insurance. That’s the number one selling point, but just like your car insurance, the chances of using it are low.
There are many different permanent insurance policies available, and each one has a specific purpose. Today we will cover the basics of what type of benefits these policies can provide.
The number one thing that permanent insurance does for you is payout 100% of the time if you’re paying your premiums. You could live to be 100 years old, and it doesn’t matter how you die; it will always be there to provide a tax-free death benefit to your family. Your premiums and coverage amount are locked in at the age you obtain the policy, meaning that they will never change later in life. That means if a 20-year-old bought a policy, then at the age of 80, they would still be paying the price of a 20-year-old person.
One of the most potent forms of permanent coverage is a “paid-up” policy, meaning that you no longer have to make premium payments, but your coverage is there for life. If you have a “participating” company providing the policy, you will also have the opportunity to grow the death benefit and cash value through dividends added to your policy in the form of paid-up additions.
Lastly, remember that most permanent policies have a cash value account that grows over time. This can be used to recover your all or part of your premiums in the event you decide to close the policy. However, there are ways to use cash value life insurance to supplement a retirement plan on a tax-free basis through either loans or direct withdrawals up to your “principal” paid into the policy.
The critical thing to remember is that nothing is as simple as a one size fits all solution. You need to work with a knowledgeable independent agent who can provide you not only multiple types of policies but numerous companies in which to select. They also need to follow the model of the detective and do proper fact-finding to understand your unique situation before offering a solution for your needs.
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