Life Insurance: Who needs it? How much? When should you get it? What type of Policy? This is just the beginning of the questions. Educating yourself on some of the potential pitfalls, will help you and your bottom line.
It is important to note the purpose of Life Insurance when looking at all of these potential red flags. Life Insurance is use to serve one purpose: In the event of your death, it pays your beneficiaries a tax free check for the face value of your policy.
Insurance companies do not condone any unethical behavior however some questionable sales tactics may be deceptive and misleading. Here are Five Life Insurance Red Flags.
1. Using Life Insurance for Retirement or Education Savings
A salesperson may tell you that a great way to save for your retirement or children’s education is through a life insurance policy. Perhaps they are suggesting a whole life, universal life or variable universal life policy to accomplish this. Their tactics will even go into sharing hypothetical illustrations trying to convince you that this indeed is the best “investment” you could make.
The salesperson may neglect to tell you exactly how much other costs are associated with these policies. Not to mention their automatic monthly savings withdrawals from your bank account. As noted above, the purpose of life insurance is to pay your beneficiaries a tax free check if you die. Period.
Do yourself a favor and establish a separate retirement and education savings. After all, retirement and children’s education savings are two very different objectives with different time horizons, goals etc. and they should be managed separately because of this.
2. Paid Up Additions
If you find that your dividends are being used to buy “Paid Up Additions” this is a Red Flag. This is the most expensive type of insurance you can buy. Additional insurance is being purchased in very small amounts. It is added to your policy by using your dividends that are being paid back to you from the company.
Once again the salesperson may be trying to make this sound like a great opportunity. And it is… for them. Every time this occurs they are making a commission on it.
Consider looking into another more suitable policy, agent and company that has your best interest in mind… not their commission check first. Keep in mind the purpose of life insurance: If you die, it pays your beneficiaries a tax free check. Know the appropriate amount you need and don’t fall for the most expensive insurance.
3. Multiple Policies versus One
With the insurance industry, there is an unwritten rule that states to never replace an existing policy… just add another one to it. This causes a red flag.
There may come a point where you realized you need more life insurance than what you currently have. This may be due to having more children or just situational changes in your life. When you add a policy in addition to an existing one, you will be paying more for the insurance. It is less expensive to get the right type of insurance at the correct amount. Paying for multiple policies of the wrong type can quickly become very costly.
So why don’t some insurance agents replace old policies with new ones and instead just add to it? Company profits, too much paperwork and… commissions. Bottom line: multiple policies will increase your costs.
Generally, term life insurance is the best fit from costs and coverage standpoint. It accomplishes the purpose of life insurance at the lowest possible price to you. There are few and very specific situations that would make universal or whole life to be the most appropriate.
Find out the correct amount of insurance you actually need and fully replace all policies with a policy that offers the correct amount of coverage. Just remember, don’t cancel a policy until you have the new one in place and active. This is your best practice to make sure you don’t incur any lapses in coverage because what if something happens to you during that lapse.
4. Higher Cost Insurance = Higher Commissions Made
Most, if not all life insurance sales people are paid on commission. Usually the upfront commissions are higher than they are for renewals. Life Insurance policies like whole life, universal and variable life insurance are more expensive than term life insurance. They pay a much higher commission to the salesperson while costing you far more as well. Higher cost insurance means higher commissions made for the agent.
5. Your Gut Instinct Is Saying Something Feels “Off”
You may have that feeling in the pit of your stomach… the one that tells you something just doesn’t feel right. Perhaps guilt tactics about caring for your loved ones is what caused you to purchase life insurance. You look at the premium amounts you pay and are in awe of how expensive it actually is. It has put a huge strain on your cash flow… yet you understand you need it. You find yourself thinking what if I faced a job loss or disability? How will I pay for all of the household bills, mortgage AND life insurance? Is there a more affordable way that isn’t so complicated and difficult to understand?
If you have experienced these thoughts or feelings, listen to your gut. Think back to the purpose of life insurance. In the event of your death, Life insurance is there to pay your beneficiaries a tax free check for the face value of the policy. It’s that simple. It doesn’t have to be confusing. Listen to your gut. If something feels off that’s a red flag. Investigate further….you’re gut is likely right.
If you find that you have experienced one or more of these red flags and don’t know what to do, don’t stress. The good news is you have had life insurance coverage when you needed it thus far. Now you have the knowledge to make a better decision for yourself. It hasn’t physically hurt you but it may have been very costly to you. It will just take some effort to fix it. It is not hard and should be done. The amount of money could save doing it the right way can help you fund education, family vacations, retirement and many other goals.
Looking for more information? Click below to find the link to the book:
“Life Insurance… Who Needs It?: What Life Insurance Agents May Not Tell You… But You Need To Know… Before You Buy” by Keith Maderer
About the Authors:
Chelsea Maderer is a Financial, Investment and Tax Advisor in the Buffalo-WNY region. She helps individuals and families to Clarify their needs and goals, Solve their problems, and Simplify their life to avoid the common mistakes that get in the way of enjoying life and retirement.
For more information please visit: http://SFTAweb.com.
Keith Maderer has been a Financial, Investment and Tax professional in the Buffalo-Niagara region for over 30 years. He helps individuals and families to Clarify their needs and goals, Solve their problems, and Simplify their life to avoid the common pitfalls that get in the way of enjoying life and retirement.
He is an author, an entertaining and humorous speaker that enjoys captivating audiences with stories, anecdotes, and messages that inspire and motivate others to achieve their goals.
He has been married for over 30 years and has 5 adult children which contributes to his great sense of humor. For more information please visit: http://SFTAweb.com, or http://KeithMaderer.com or visit his Amazon Author Page.
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