This is life insurance 101 – written for those looking to buy their first life insurance policy.
Life insurance 101
You are a Millennial. You’ve launched your professional career and are building a solid financial house for yourself. Life insurance is part of the foundational structure of this financial house, along with your estate documents. Check out our short video on basic estate documents. Once you’ve read my post on life insurance 101 and established coverage, there’s no need to revisit your coverage until a life event takes place (marriage, baby, new mortgage, etc.).
Who needs to buy need to buy life insurance?
This is perhaps the most important question when it comes to life insurance 101. Some life agents will say “everyone”. In my opinion, you have a life insurance need when someone else is depending on you for a living. If you do not have other substantial assets, you probably need to buy life insurance. Let’s say you’ve got...
It’s not the life insurance product but the process of obtaining it isn’t fun.
You put the life insurance agent/broker in the same category as a stereotypical car salesman. He’s got greasy hair, you’re his newest best friend in the world, and he wants to know, What do I need to do to get you into a policy today? You think he’s out solely to earn a commission. You have nothing against anyone making a living, but you just don’t trust him.
You’ll end up purchasing a product – an intangible product, yet – that you know you don’t fully understand. Clearly, this doesn’t sit well. You’re afraid somebody’s pulling a fast one on you. Did I do the right thing? Am I overpaying? What do other companies offer?
You have a thousand other things to spend your money on that are a whole lot more fun. Eating out. Vacations. Heat tickets. Even saving money and paying bills seems like a better use of...
There’s a difference between a broker and an agent. An agent represents the insurance company, and his job is to sell policies. The broker, on the other hand, represents the client, and shops the insurance market to find the product most suited to the client’s specific needs and goals. From the broker’s point of view, there is no good or bad policy – just unsuitable policies. Here’s an example: I’ve just finished painting a bedroom, and it’s time to put the switch plates back on the wall. I ask you to hand me a screwdriver. You pass me a Philip’s Head driver, and I need to send home a slotted screw. Does this make the tool you handed me a bad tool? Of course not – just the wrong tool for the job. This is why whole life insurance can be like a Philip’s head screwdriver – because too often agents sell it as the be-all and end-all solution to...
The fundamental reason to buy life insurance is that someone else is depending upon you for a living. Plain and simple. It is risk transfer: in exchange for premium dollars, the insurance company will make a big payout at your demise.
The life insurance industry is one that responds to market demands. In Part I of this series I’m going to give you a little history. What kind of policy should you buy – term? whole life? In subsequent entries, I’ll discuss the other jobs life insurance can do for you, and talk a little about underwriting.
Original insurance contracts were for one year only – term policies, in other words, which renewed each year. As the insured ages, year-by-year the premiums would rise, reasonably enough, as one’s mortality age comes closer. So fundamentally we have a bet here between two parties: you make a bet that you’ll die during the...