American consumers face an overwhelming set of financial options throughout their lives. Investment, legal and risk management considerations continue to multiply decade after decade. However, many of the options available are not good options. In the world of life insurance, there are three products that stand out as not being appropriate for the majority of Families. Although each of these policies could help in certain limited situations, they are all overpriced, very helpful, and sometimes poorly sold by insurance agents.
Mortgage life insurance:
Mortgage life pays for your home in the event you die. I don’t know why a consumer needs an insurance policy that only pays the mortgage. In comparison to simple term life insurance that can be purchased in an amount to cover a mortgage, Mortgage Life Insurance tends to be extremely expensive, sometimes fabulously expensive. Also, by its very definition, mortgage life benefits generally decrease as you pay off your mortgage with overtime.
In comparison, a uniform term insurance policy taken out with enough death benefit to cover the entire mortgage will be paid to the survivors as they see fit. They can then decide how best to use the money. There are certain situations in which mortgage life insurance may be a good idea, such as when the main breadwinner is uninsurable. Otherwise, for everyone else, consider Term.
Life insurance for children:
The goal of life insurance is to provide an emergency financial sum in the event of an early death. Life Ins. Dollars must be used to replace lost income. Children, in general, have no income; therefore, there is no financial reason to have a life insurance policy for your child.
The smartest option is to use the cost of the children’s life policy to supplement one of the parents’ term life policies or put the money away in a college savings plan, such as a 529.
Often times, life policies for children are sold with the idea that they guarantee the child’s insurance once the child reaches the age of maturity. The problem with this idea is that life insurance policies for children (as they are often known) are not written in amounts that will be very useful once they reach adulthood.
Skip life policies for children and use your cash wisely elsewhere.
Cash Value Life Insurance:
Cash value insurance goes by several names: whole life, universal, and variable. There are many other derivatives of these names. Although their appeal may be high, cash value life insurance policies are rarely worth the extra money needed to purchase them.
Variable life, which contains a stock component, can only be sold by registered advisors. Total and Universal, which may not require advisers, are presented by insurance agents nationwide as a Combined Investment with Insurance. The main problem is that the combination of these two components leads to a confusing, complex and expensive product that is almost impossible to compare. Add in the high fees and confusing legal language and it’s no wonder Suze Orman, Dave Ramsey, and Clark Howard are generally in agreement that cash value insurance plans are a bad option for most Americans.
The smartest alternative is to find a highly rated term life policy that meets the needs of both you and your family. Both spouses, working or not, could probably use some form of inexpensive term insurance.
By avoiding just these three life insurance products, your family could save tens of thousands of dollars a year.