Swim With The Sharks – Life Insurance

In discussing life insurance we must first confirm what it is and what it isn’t!

In summary, the purpose of life insurance is to protect our loved ones from having to fulfill our financial obligations after we pass on. These obligations could include:

  • College and/or other loans
  • Our family’s living expenses (especially if we are the “primary” bread-winner) so they can maintain the same lifestyle as when we were around
  • And, finally (and morbidly) the costs to torch and/or bury our carcass

On the flip side, life insurance is not an investment! This is the first shark attack we’ll cover…

To be clear, I am NOT an expert on life insurance. And, my intention is not to share a detailed description of the various forms. My goal is to merely point out a few kinds, identify the one that makes sense, and put up the flag where there are shark sightings.

At a high-level, there are a few forms of life insurance:

  • Term Life Insurance
  • Whole Life
  • Variable Universal Life

The ONLY kind of life insurance we really need is Term. It is very simple and low cost. And, we can “pay as we go”, based on need.

As our obligations increase (we have kids, acquire a mortgage) we can choose to ratchet up our coverage. As our obligations decrease (the kids move out, debts paid off) we can ratchet down our coverage. All, very simply and cost-effectively.

The other forms of life insurance are pitched as a form of investment. Complicated and costly investments. Do NOT be confused or persuaded otherwise. Life insurance is NOT an investment. Tangling life insurance up into an investment product is a way for sharks to take their bite out of our cash. I hate that!

A great quote to live by, in this regard:

Never invest in any idea you can’t illustrate with a crayon.

Peter Lynch – American businessman and stock investor

Rest assured, there is no insurance agent or financial advisor on the planet who can illustrate with a crayon how whole life and/or variable universal life insurance works. Avoid them both.

Bottom-line: Keep things simple. Acquire the appropriately sized term life insurance policy to ensure our loved ones aren’t burdened with our obligations, upon our leap to the other side. And, separately define and manage our investments.

More to come!

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