In Part I of this 3-part series I gave a brief history of the life insurance industry.
Here in Part II I'll go over the main applications for life insurance policies. Next, in Part III, I'll discuss some of the behavioral issues in obtaining coverage.
So what are some of the uses of life insurance? First and foremost, a death benefit to one’s survivors. It is a risk transfer mechanism. If you die before you've been able to financially provide for those financially dependent upon you, the life insurance policy will do so. Other common applications:
It is not uncommon for a commercial lender to require that a borrower take out a life insurance policy in the amount of the loan payable to the lender.
Many cash value policies can be structured to be over-funded in earlier years, and pay out a tax-free stream of income...
I came to financial planning as a profession in my 40’s, having made a mid-life transition from retail management. I worked in both department stores and specialty retail and generally enjoyed the work. I always enjoyed Christmas in the stores – the music, the new fragrances, the decorations, and generally upbeat anticipatory atmosphere.
Christmas time was grueling, however. The amount of merchandise that comes into a store through its loading dock, and then out the doors in the customers’ shopping bags, is enormous. It is very physical work, in that all that merchandise needs to be unpacked, displayed, and stocked around the store. The associates who wait on you generally have competing priorities imposed upon them: great customer service, while getting the new merchandise out of the bins and on the racks, and looking out for thieves.
You knew all year this was...