There are plenty of reasons why you need to understand the basics of life insurance no matter who you are.
- Things Can Change at Any Time – Even if you don’t need life insurance now, it pays to understand how it works. How many times have you found yourself saying, “If you’d asked me if I’d be (married/divorced/having children/losing my job/buying house) a year ago, I’d have said you were crazy, but now…” It’s really true that understanding how your insurance needs will change as your life circumstances do is a smart move.
- Life Insurance is a Contract – Any kind of insurance, including life insurance, is a contract. There are requirements that both you and the insurer have to make good on. It’s easy to think of life insurance as a thing you buy that just stands alone on a shelf (or in a file), but this isn’t really correct.
Ultimately, you’d never sign an important contract without reading it; don’t buy insurance without understanding it.
- Life Insurance is a Commodity that Gets Sold – This means that there are professional salespeople involved in the process who make their living off of your choices. Whenever this is true, buyers beware!
This is not to say that insurance agents are dishonest. However, you do need to inform yourself as a consumer or you will not be able to effectively judge your needs and what is presented to you as part of a sales pitch. Most life policies in America are sold by agents who have a major interest in selling one kind of insurance (whole life) more than others..
- Insurance versus Investment – Whole life insurance is a vehicle for investment, and as such it is many times more costly than term life insurance.
Typically this means that many Americans who purchase whole life coverage can’t afford enough to cover what they really need, and they end up underinsured.
Like any investment, too, returns that insurance agents quote you are educated guesses. They are often optimistic guesses; after all, as you already know, commissions depend on the sale of whole life insurance and sales pitches slant things in optimistic ways.
The bottom line is that today there are so many ways to invest your money and grow it that whole life policies are almost never an ideal investment vehicle. You need to understand the terrain to ensure that you make the best decisions with your money.
- Dealing with Loss is Difficult – No one wants to think about what will happen when they or a loved one dies. It’s depressing and can feel paranoid. While it would be easier to just plug your age and income into a machine and get an answer about what insurance to buy, there is no magic bullet. Only informed study of your situation and options can find you the best answer.
This means you have to understand how life insurance works and how your own circumstances will function within life insurance parameters.
- Life Insurance Myths Are Everywhere – There are many urban legends about ways to choose how much or what kind of life insurance to buy, and even why not to buy life insurance. They are almost all wrong!
- Often people use the old formula of four times their annual income to determine how much life insurance they need, and this is a poor substitute for actual analysis of your situations and options. What’s more, four times your income is almost never enough coverage. A straight multiple of your income does not correlate to anything. Instead, you need to assess all of the numbers and research what is available to you.
- Have you ever heard someone say, “I can’t buy life insurance or I’m betting I’ll die!” This just doesn’t make sense. All you are doing when you buy life insurance is building a safety net for the worst case scenario. IN fact, you’re technically betting that you’ll live, and so is the insurer!
The bottom line is that with something this important, you can’t leave the decisions to chance or a salesperson. You buy life insurance to take care of the people you love, and part of that process is making sure you know what you’re doing. So, how can you make sure you know how to buy life insurance the first time?
If you need help with your insurance needs I am here to help. If you have questions about your current coverage or just want a second opinion give me a call in the office 336-310-4233 or shoot me an email peter.huminski@lpl.com.
Best wishes
Peter
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material contains only general descriptions and is not a solicitation regarding any insurance product. For information about specific insurance needs or situations, contact your financial professional. This article is intended to assist in educating you about insurance generally and not to provide personal service.