We see the desire to get “something for nothing” in the gambling halls and lotteries. We see it with those who try crash diets and end up in worse shape than before. And we see it in the financial rabbits that people chase into holes that become difficult to dig their way out of, often led by media and advertisements that perpetuate “easy money” myths.
Have you fallen for a Something for Nothing myth? Here are some of the most common traps that snare investors and entrepreneurs:
“Believe (me), it’s not fun trying to explain to a client why his cash value went down and what are those high fees about.”
– Agent/Advisor discussing Whole Life vs. Indexed Universal Life with a colleague
Have you ever wondered if a financial professional was selling you what is really best for you? Perhaps we all have at one time or another. In this post, we peel back the advice that agents and advisors give, not just to their clients, but to their colleagues about permanent life insurance, namely, whole life vs. universal life.
Whole life insurance has been around since before the depression, and has helped policy owners through good times and bad like an old reliable workhorse. In more recent decades, however, some consumers have demanded policies that might resemble a show horse more than a trusty mare. The result has been Universal Life, which has promised – if not always delivered – greater flexibility and faster growth of cash value. (See last week’s post for more about the differences between Universal Life and Whole Life.)
“A penny here, and a dollar there, placed at interest, goes on accumulating, and in this way the desired result is attained.”
The Whole Life Insurance Dilemma: Taking Your Cash vs. Taking a Policy Loan
Need a chunk of change? Perhaps it’s an emergency, perhaps it’s an business opportunity, or it may simply be a periodic major purchase such as a new car. Either way, it’s bound to happen – you’ve got a need for cash, and you have to decide whether to get the cash from a credit card, a retirement account, a home equity line of credit, or somewhere else.
“A life insurance agent said to a would-be client: “Don’t let me frighten you into a hasty decision. Sleep on it tonight. If you wake in the morning, give me a call then and let me know.”
How much life insurance do you need, exactly? How do you determine how much is enough? Are there rules of thumb? Are there limits to how much you can get? And if you are using a whole life policy to store cash, is it really providing you the death benefit your family should have?
First of all, we’d like to clarify that no one “needs” life insurance. It’s not a staple of life like food, water, and shelter, and we are definitely not in the business of applying pressure or guilt to buy life insurance (or more of it).
“There are roughly 300 million Americans. Of these, over 1 million are lawyers. No other nation on earth has, or wants, this many lawyers. These lawyers work tirelessly encouraging and assisting Americans to sue one another.”
-Don Miller in op-ed to The Telegraph, “We Are the World’s Most Litigious Society,”
You might be a careful driver with good insurance. You might treat people fairly and with respect and enjoy excellent relationships. You might avoid conflicts and risky behavior like the plague, and you might not even own your own business.
It doesn’t matter.You can still be sued for everything you’ve got.
There is always a risk of being sued. Beyond the cliché of the car accident lawsuit (a real possibility that could happen to anyone), consider these other risks:
“The Act of God designation on all insurance policies… means, roughly, that you cannot be insured for the accidents that are most likely to happen to you.”
– Alan Coren, English humorist
“Insurance Poor” is a term for being over-insured. In other words, you’re so poor from making the payments to protect yourself from the “what ifs” that you don’t have money for much else!
It can be a cyclical problem. Perhaps you don’t have liquid savings to pay higher deductibles, so you pay higher premiums to get lower deductibles, thus perpetuating a lack of cash flow and savings. Or, perhaps you’re “saving too much,” but always in a 401k, an IRA, or an education account there the money is tied up for a specific purpose. The cycle continues; you never feel you can reduce your premiums, because cover higher deductibles feel risky.
What’s the Way out of the Insurance Deductible vs. Premium trap?
With the right amount of insurance, the right kind of insurance, and most importantly, the right approach to insurance, you’ll never be “insurance poor.”
The right AMOUNT of insurance.
Get the coverage you absolutely need, without paying unnecessarily high premiums.
This website is provided for informational purposes only. The information contained herein should not be construed as the provision of personalized investment advice. Information contained herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security or investment. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future.
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