Have you ever wondered if your life insurance is as cool as you think it is?
Even more importantly, how do you know you're not costing yourself thousands of dollars for no good reason?
I get a ton of questions almost daily about life insurance.
What's the right kind?
"My insurance agent said.... What do you think?"
Let me just set the record straight about life insurance, and then give you the top mistakes most people make when getting life insurance.
I believe everyone has some sort of financial value, and therefore should have life insurance. That being said, I trust very few life insurance agents out there because they think like life insurance agents, not like stewards, business owners, or real investors.
If you think you have a great agent that makes you the exception...you probably aren't the exception. They are likely costing you up to thousands of dollars of wasted money each year, whether from the insurance or the lost opportunity cost of what you could be doing with that money.
So let's address the common mistakes I see happen. Remember, it's not your fault if you have made these mistakes. You were making the best decision with the information, or misinformation, you were given. So here they are....
- Life insurance is "life" insurance, not death insurance - The purpose is not just to cover your loved ones' needs, but to allow you to have permission to use your money more productively WHILE YOU'RE ALIVE! Why? Because having life insurance enables you to use your money to create wealth today instead of hoarding it in a lame savings account "just in case."
- My agent knows what's best for me - Your agent knows what's best based on what the insurance companies teaches them to teach you. I know this because I have experience with life insurance for almost 13 years AND I've coached other insurance agents that admit this. Who do they work for? Even if they broker with different companies, who educates them about life insurance? For me to learn a better way to do life insurance that takes into consideration your cash flow, costs, and not take money away from your ability to produce with your business or investments, I had to separate myself from their education completely. There are much better ways to do life insurance that is in YOUR best interest, not the companies' interest.
- Wrong type of insurance - Closely tied with #2, most insurance companies like to market term insurance because it's cheap and rarely pays out. Insurance companies I have dealt with will admit that only about 1-2% of term insurance ever pays out! That's a huge money maker for them when people just want cheap insurance. Why else do you think it's cheap? And don't think all term is the same. If you can't convert it to a solid permanent policy, like whole life insurance, it's not worth having if you have the choice. This applies to group insurance thru work. This ends up being a big waste of money, especially if you are older than 35 years old. Conversely, only buying indexed universal life insurance or whole life insurance doesn't mean it's good for YOU either. Many will oversell that to you and take money out of your pockets where you can't use it to make money today.
- Wrong amount - Believe it or not, most insurance agents will under-insure you. Again, the company doesn't want to insure you for too much. In fact, they will NEVER over-insure you. They don't want you to have the incentive to end your life. Typically, they will only allow you to have 5-20 times your annual income. A good rule of thumb they use is your current income times the number of working years left (such as age 65). For instance, if you're 40 years old, they will allow about 20 times your current annual income. My recommendation is to get as much as they will let you have. One of my relatives got $50,000 of life insurance in 1963, and thought that was almost too much for a 19-yr old back then. However, is that really worth much today? Do you think that even $1Million will be worth much as you think in 10-20 years?
- Wrong company - When considering companies that will be more secure during rough times, and typically pay you better dividends on your permanent insurance, then use a mutual company (not one traded in the stock market) that has paid dividends for at least the last 90+ years in a row.
- Permanent policy structured incorrectly - This one happens a lot!!! I'll get a new client who will say, "I got a universal life/whole life policy. That's good, right?" I'll look at it and find out they pay too much for too little. Not only are the premiums higher than they should be, but they will have less cash in the beginning because they are paying the agents' commissions up front. This one makes me upset sometimes because the company teaches them to do it that way. However, that only puts people in a risky cash flow position that blows up in their faces during lean times. It took me several years working with my insurance agent to find the right balance to this where it serves the business owner/investor, instead of the insurance agent. I LOVE cutting my insurance agent's commissions when referring clients to him. Interesting point though - he makes more money than most agents because he does it from the correct, abundant perspective.
In summary, don't assume your insurance agent is doing what's best for you. He/she might have the best intentions, but ignorance is very expensive, especially to you.