You may think this post might be boring or one you’ll want to skip, but it won’t be and you shouldn’t. This is one you’ll want to forward to family and friends so they can avoid the mistakes we’ll be discussing.
Life insurance as a necessary evil?
Most people, when they think of life insurance, think about spending money on something that will benefit others, not themselves, and as such, to many, it’s painful to think of the premium.
What many people don’t know is that life insurance can benefit you while living and I’ll discuss that below.
Term Life Insurance Mistakes to Avoid
- Always use an “independent” insurance agent. Captive insurance agents (State Farm, Northwestern Mutual, N.Y. Life) either can’t or don’t shop multiple companies. An independent agent will have access to a search engine that will search dozens of companies for the lowest rate.
- Make sure your term policy has conversion privilege. A conversion privilege lets you convert the policy to a “permanent” policy. Why is that important? Because if you become sick (especially if terminal at the end of your term), you’ll then have the option (even if expensive) to convert to a permanent policy that will pay to your heirs (vs. letting the term expire leaving your heirs with nothing).
The cheapest way to buy a “permanent” policy
This is for readers who have decided that they want to “guarantee” that a death benefit will pay whenever they die.
- Whole life isn’t the only type of permanent death benefit policy.
- Whole life isn’t the cheapest way to buy a permanent death benefit.
- Make sure you work with an “independent” advisor who will quote for you what I call a Guaranteed Universal (UL) Life policy. Many insurance agents don’t even know that you can buy a UL policy with a guaranteed death benefit rider. Most of the time such a policy will be less expensive or even significantly less expensive than a whole life policy.
- If you are married, make sure you price out a 2nd to die policy. It’s a policy that will pay the benefit upon the death of the 2nd spouse. If the goal is to provide a death benefit when both parents are gone, this should be the policy of choice. 2nd to die policies are generally much less expensive to purchase (preferably a UL 2nd to die with guaranteed death benefit rider) than non-2nd to die policies.
Life insurance that pays you while living
- Some policies today (term and UL) come with a “free” chronic illness rider.What is that? It’s a rider that pays for Long-Term Care (LTC) expenses if you incur them before dying.Statistics from just about any study having to do with LTC says that more than 50% of Americans will have LTC expenses sometime in their lifetime. LTC insurance has become very expensive and while a life insurance policy that will pay for some LTC expenses isn’t a replacement for traditional LTC insurance, if it can come on a life policy without additional cost, why not buy a policy that has that benefit?
- A “good” cash value life policy can be a terrific retirement vehicle.
Most people are unaware that a properly funded (maximum cash value/minimum death benefit) life insurance policy can be a terrific tool to generate tax-free cash flow in retirement.
Cash in a life insurance policy can grow tax-free and can be removed tax-free. Because of the tax benefits, a “good” cash value life policy can potentially generate more after-tax cash flow than an IRA, 401(k) plan, or a typical investment brokerage account.
The key is using a “good” policy that is designed with minimum expenses.
Have questions? Need help? Or want more information?
If you have questions about your current policy….
If you have questions about buying a new policy…
If you would like information on policies that come with free chronic illness riders…
If you would like information on using cash value life as a tax-free retirement tool…
Feel free to contact us or schedule an appointment with an advisor.
Also, you can also learn much more about the proper use of life insurance for death benefit planning or to use it as a retirement vehicle on our website at https://aspencreekfinancial.com/life-insurance-made-easy/.