Need a policy for life insurance? Then, be careful... because it's hard to understand life insurance. It's easy to be tricked into buying something on the basis of false information.
A well-known life insurance company and some of its agents recently paid a big fine because they let people buy a life insurance policy that looked like a retirement plan.
Not much thought was given to what a life insurance policy is really meant to do.
Life insurance is not a way to make money for you. It's a way to make sure that if you die, someone you choose will get money from your account that hasn't been taxed.
If you care a lot about someone and want to protect them, it makes sense to buy life insurance.
Are you the main person who brings in money for your family? Well, your lost income could have terrible effects and make it hard for the people you love to keep living the way they are used to.
The only way to know for sure that this money will be replaced right away is to buy a life insurance policy.
Notice that I didn't say term life insurance, cheap life insurance, or whole life insurance.
Because this doesn't really matter to the people you care about.
Over the years, I've given millions of dollars in life insurance payouts to the families of people who died while providing for their families.
No one has ever asked me what kind of life insurance policy it was. They were just very happy to have the money.
Term life insurance is the least expensive, but it's unlikely that the death benefit will be paid out because the policy will probably expire before you die.
Compared to other types, the premium may seem cheap right now. But what do you do when you grow up?
Premiums for term life insurance can stay the same for a certain number of years, but after that, the price will go up so much that you won't be able or willing to pay it.
Whole life insurance has a fixed premium that stays the same until the policy is paid off. This could be in 10, 20, or even 65, 85, or 100 years.
Not every kind of life insurance is better than every other kind. But it's important to know what you're buying, how it works, and how much it will cost you in the end.
After all, if the policy isn't in effect when you die, you've just wasted your premium money.
Don't believe that line about buying term insurance and investing the difference. Anyone who tries to trick you with this nonsense doesn't know how to evaluate the purchase of life insurance in a smart way.
You might want to think about universal life. This kind of policy can guarantee the death benefit up to age 115, no matter how well the investment it is tied to does.
Universal life insurance is much cheaper than whole life insurance, even though it costs more than term life insurance.
But be careful, because some universal life policies are sold by focusing on projected interest rates instead of contractual guarantees.
If you are thinking about buying a whole life insurance policy from a mutual company that pays out dividends every year, ask the agent for a hypothetical example using a dividend forecast that is at least 1% lower than the current rate.
When long-term interest rates were higher in the past, mutual companies gave their policies very large dividends.
But because long-term interest rates are still low, it's unlikely that a life insurance policy will work as shown.
In short, pay close attention to the guarantees of any life insurance policy you buy. Also, make sure you know the life insurance company's credit rating.
There's nothing wrong with term life insurance, but you should know what you can do to switch to a permanent plan. This could be very important if you stop being able to get insurance before the policy ends.
Don't forget that you might never get another chance to make the right choice.
