Make financial decisions based on facts, not assumptions.
We heard of life insurance before and naturally molded our own opinion on the product. We acquired bits and pieces of information from friends, family, or the media, but most likely haven’t made an effort to fully understand it. You can either think of it as an expense, or a solution. Whole life insurance can serve as a foundation to your finances; provide a living benefit, and a peace of mind. Lets discus some of the reasons why people don’t buy whole life insurance, and answer some of your questions.
Most people think life insurance is a monthly payment for a bag of money that sits in an insurance company vault and the policy owner never gets to see this money, touch it, or use it. Then when they die, their family receives it. So why buy it if you personally never get to the benefit from it?
Then they say things like “I’m too old to get it now, I should’ve got it when I was younger because it was much cheaper then.”, “I smoke, so it’s not worth paying higher premiums than everyone else.”, “I’m in bad health, so I probably can’t get it.”, Or “I’m not ready yet, since I don’t have kids and I don’t own a home.” Maybe you also thought this way?
2. No Need
It’s a need vs. want battle. No one NEEDS life insurance. Not Term Insurance, or Whole Life Insurance, but people buy it. Poor people buy it. Rich people buy it. Banks buy it! Why would a billionaire buy a $201 million whole life insurance policy? There were definitely very smart people involved in the deal in addition to the 19 companies that underwrote it. Why didn’t the attorneys and CPA’s involved advise against it? He didn’t NEED it, and neither do you Mr. Client.
People want it. It’s a WANT product. It’s not against the law to die without life insurance. Your family will go on living; maybe not with the same lifestyle, but still making ends meet. People decide they want it when they truly understand how it works.
They WANT their family to have a future even if they die in the process of building their wealth. They also want it to create wealth for generations to follow when they are gone. And they want it because of the living benefits they can take advantage of now. Life insurance is the cornerstone of our financial being. Just the presence of life insurance, makes people’s lives more prosperous and productive.
People think whole life insurance is too expensive, so they buy term insurance instead. Lets take a look at the common misconceptions on cost between the two products.
- The premiums are too high with whole life insurance. Well, it depends on the way your agent designs the product. If you design the product for maximum efficiency, it could cost 80% less. Mr. Client, I too wouldn’t buy 90% of the policies on the market today, because they are improperly designed.
- Lost opportunity cost on premium. They could have bought term insurance instead of whole life and used the remainder of the money to invest in the market and get rich! So they think, but it’s not always true if studied closely and taking the distribution phase into account.
- Increase in premium as you age. As we get older, the cost of insurance increases. So if after your 20 year term insurance policy has ended and you’re still alive, you might be looking for a new policy at a much higher rate. So you might need life insurance longer than you planned. Maybe locking in a good rate for whole life insurance earlier on in your carrier was the better option?
- Loss of the death benefit (Mr. Client, the death benefit will most likely never be paid out to your family). In the event you are still alive when the term expires, the insurance company keeps the premiums you paid in and you either apply for a new policy or go on without life insurance. Statistics show that only 2% of term insurance ever pays because people either outlive their term insurance policy or they drop the policy before it expires. So term insurance isn’t so cheap after all since you’re 98% likely to lose ALL the money paid in.
“The bitterness or poor quality remains long after the sweetness of low price is forgotten.” -Benjamin FranklinWarren
Buffet said it best. “Rule #1: Never lose money, Rule #2: Never forget rule #1.
4. Bad Investment?
So you think it’s a bad investment? Mr. Client, I couldn’t agree with you more. Compared to what? When coordinated and integrated with other assets, it becomes a cornerstone of wealth-building and wealth distribution that no other product can offer. When someone dies, they never come back to ask “what was my rate of return on my investments”. They ask for the total dollar amount available in the portfolio.
Did you know that JC Penny, Disney World, McDonalds and many more world known successful companies today were started with a loan against the owner’s whole life insurance policy?
5. Media Misinformation
Everything on TV, in the newspaper, and on the internet is true! Nothing could be further from the truth. We have people like Suzy Orman and Dave Ramsey who are financial entertainers that are spewing nonsense hiding behind an act. They are not licensed financial advisors or agents licensed to speak about investments or insurance, but the average Joe listens to them.
They are providing personal opinions, NOT professional opinions. Mr. Accountant, are you licensed to give life insurance advice? So from here on out, you’re going to be giving me a personal opinion and not a professional opinion, right? If an agent or registered advisor spread lies like Dave Ramsey does, they would be sued, lose their licenses, and get thrown in jail. Since he’s not licensed, it’s ok to misguide his listeners?
6. Lack Of Understanding
There are those things you know “that you know”. Then there are the things “you think you know that you just don’t know”. And finally there are those things that you “think you know that just aren’t so”. So if what you were taught turned out not to be so, when would you want to know?
Life insurance doesn’t have to be a complicated topic. No, whole life doesn’t fit everyone’s situation and isn’t always the best savings strategy, but it can make every other product in your portfolio work that much more efficiently. Maybe term insurance is the better option for you and your family. It’s easy to get caught up in buying a product instead of a solution when we don’t fully understand the NEED.
When speaking with your advisor, make sure you have a full understanding of the product they are offering before you sign anything. They should be able to give you reasons why it fits better than ALL the other options based on YOUR current financial position and future goals. Thoroughly interview different advisors before deciding on whom to work with.
Please share this article with someone that you think can benefit from seeing life insurance from a different angle.