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The Life Insurance Policy And What You Need To Know Before You Buy
By Don Adams
Looking for a life policy? Then, be careful... because life is difficult to understand. It's easy to be conned into buying something under false pretenses.
Recently a prominent life company together with several of its agents paid a huge fine because it permitted the sale of a life policy disguised as a retirement plan.
Little attention was paid to what a life policy is truly designed to provide.
Life is not an investment for your benefit. It's guaranteed income tax-free cash paid to someone you designate in the event of your death.
If you deeply care for someone and want to protect them, then buying a life policy makes sense.
Are you the primary bread winner in your family? Well, your lost income could have horrible consequences and jeopardize the ability of those you love to continue to enjoy their standard of living.
The only way to guarantee an immediate replacement of this money is with the intelligent purchase of a life policy.
Notice I didn't say term life insurance, low cost life insurance, or whole life insurance.
Because to your loved ones... this doesn't really matter.
Over the years I've delivered millions of dollars of life benefit to the families of deceased bread winners.
And no one has ever asked me what type of life policy it was. They were just extremely grateful to get the money.
Term is the cheapest, but it's unlikely the death benefit will be paid since the life policy will probably lapse before you actually die.
Right now the premium may seem cheap compared with other types. But what happens when you're older?
Term life premiums can be level for a specific number of years, but when that number of years is up the price will skyrocket to a point you won't be able or willing to pay.
Whole life provides a lifetime level premium until
the policy is literally paid-up. This could be 10, 20 years ... or when you reach age 65, 85 or 100.
One type of life policy is not necessarily better than another. But it's critical you understand what you are buying, how it works and your net cost.
After all, if the policy isn't in force when you die you have thrown your premium dollars right down a rat hole.
By the way, don't fall for that line about buy term and invest the difference. Anyone who cons you with this bunch of malarkey doesn't have a clue how to intelligently evaluate the purchase of life insurance.
You should consider universal life. This type of policy can guarantee the death benefit up to age 115... regardless of the performance of the underlying investment.
Although more expensive then term life insurance, universal life is far less costly than a typical whole life policy.
But be careful because some universal life policies are sold by focusing on projected interest rates rather than contractual guarantees.
If you are considering the purchase of a whole life policy from a mutual company that declares annual dividends, ask the agent for a hypothetical illustration using a dividend forecast at least one percent less the current rate.
In the past when long-term interest rates were higher, mutual companies credited very handsome dividends to their policies.
But today with long-term rates still depressed, it's unlikely a life policy will perform as illustrated.
In summary, pay close attention to the guarantees of whatever life policy you decide to buy. Also, make sure you know the credit rating of the life company.
There is nothing wrong with term life insurance, but understand your options about converting to a permanent plan. This could be critical if you become uninsurable before the policy expires.
Remember... you may never get a second chance to make the right decision.
Veteran financial consultant Don Adams provides easy to understand advice on a wide variety of money matters. You will find tons of free tips at personal-finance-on-the-net.com.
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