When Rick got married and started having kids, he wanted to make sure he could protect his family if he passed away. He’d heard about life insurance, and he was tempted by the ads he saw that promised a $1,000,000 death benefit.
But with Term, Whole, Universal, and Variable Life Insurance, how could he choose which would be the best option?
Photo by Scott Graham on Unsplash
Before signing the paperwork, Rick must understand:
What is the purpose of life insurance?
Many people look at insurance as a way to provide their family with a bonanza upon their death. They want to provide comfort even when they’re no longer around.
That is truly a genuine and compassionate impulse. And insurance companies have taken advantage of it.
If you were to ask someone who had received one of these jackpot death benefits, which do you think they would prefer?
The death benefit or one more day with their loved one.
Most would trade any amount of money for one more memory.
Because of this, life insurance is not intended to make your family rich. It’s designed to protect your family from the loss of income.
For Rick, insurance can help provide his family with income while they recover. It can also pay off outstanding debts, so they’re not burdened by liabilities.
What are the consequences of paying too much?
No one likes paying too much for something. But people frequently get lured into spending too much on life insurance.
People might get lured in by a promising 5% interest rate on any cash value. That might sound promising, but how is the insurance company able to offer that guarantee?
Upon receiving your premiums, the insurance company actually turns around and invests that money into their own portfolio. With those higher returns, they can easily turn around and promise their clients that interest rate.
What if you could cut out the middle man and get those higher returns yourself?
For every dollar we overspend, we’re giving up the potential to invest that money. And if Rick chooses to go for an expensive policy, he’s giving up the opportunity to make that money himself. But the truth is he’s also giving up more than that.
One way to think about money is: Money buys time. By spending less on life insurance, Rick could go on vacation with his family. He could retire sooner, and spend the extra time with his grandkids. Perhaps he could also spend money on having someone mow his lawn, freeing his Saturday mornings to create more memories.
So you can see, paying too much can have very real repercussions for Rick.
What kind of life insurance should Rick get?
For most people, the solution becomes simple Term Life Insurance. This is insurance that Rick can purchase for a specific span of time. This is usually the cheapest form of insurance a person could get.
Term Life Insurance will span the gap between when Rick’s death will cause the most financial harm to his family, until his portfolio and assets grow to the point where they’ll be protected anyway.
If you’ve already purchased a different type of policy, and you’re starting to realize how low of return you’re getting for what you’re paying, it’s not too late. Click here to sign up for a FREE Bronze Account, and a licensed financial advisor will be in touch to help you.