'It's
Not Like Buying a Book Online, Or Ordering French Fries at
a Drive-thru Window'
While
the '90s were a time of economic prosperity and wealth accumulation
for many, the 2000's have reminded people of the importance
of diversification and protection. Certainly, economic and
world events have caused many of us to refocus on a larger
and more challenging financial picture.
In
fact, a series of studies conducted by Northwestern Mutual
reveal that one in three of us feels an increased need for
guidance from a financial professional . And, wisely, many
financial planners and advisors are preaching the need for
diversification as a means of better managing risk. But how
many of them are suggesting that their clients take a second
look at an old reliable tool - life insurance - as an essential
element for a sound personal plan?
Arguably,
the biggest issue with life insurance is the tendency to oversimplify
the whole process of buying it. It's either term or permanent,
some "experts" will say. Furthermore, these same experts will
often advise that term is the only way to go for everyone.
Truth
is, buying life insurance cannot be reduced to a simple either/or
decision. It is much more than a simple commodity; it's not
like buying a book online or ordering French fries at a drive-thru
window. And it will depend upon each person's circumstances.
There
are issues of:
How
much insurance you need and how long you'll need it.
How
the actual contract is designed: what types or combination
of types are best for your needs; how your insurance needs
might change over time; the extent to which you are prepared
to pay premiums over an extended period.
It
follows that the life insurance policy a person owns should
reflect that individual's unique needs - there are no one-size-fits-all
solutions when planning for financial security. For some this
could mean term life insurance; for others, it could mean
permanent life insurance. For others, still, it could mean
a blended policy of both term and permanent insurance, or
a combination of several types.
Whenever
you get into the issue of term or permanent, it's important
to understand the fundamentals. With permanent insurance,
the insurance proceeds are paid to your beneficiaries whenever
you die, as long as the premiums continue to be paid. Permanent
insurance has level premiums and a cash value that grows on
a tax-deferred basis. Term insurance, on the other hand, provides
a payout only if you die within a certain period of time.
The premiums typically increase each time you renew your policy
and it has no cash value. Initially, the premium for term
insurance is considerably lower than that of a permanent policy.
But, in the long-run, the net cost may eventually be lower
with the permanent plan.
Human
nature also plays a big factor in the issue of whether it's
better to buy a term or permanent policy. Many financial "experts"
recommend to anyone in the market for life insurance: "Buy
term and invest the rest." The truth is most people don't
invest the rest. Only 14 percent of those owning term insurance
actually invest all the money they save in premiums every
year .
Life
insurance should be considered the foundation and most conservative
element of any personal plan - the money that absolutely has
to be there, no matter what the economic cycle or climate.
Furthermore, choosing the right amount of insurance is more
important than finding the right kind. After that, the type
you buy depends on your timetable and budget.
A
good financial representative will make sure you consider
life insurance as part of your planning strategy. This is
someone who can help you understand your insurance needs and
help identify which products offer innovative solutions in
a particular situation. Rather than push a product, a good
financial representative will do these things:
-
Ask questions about your goals and objectives and your long-
and short-term needs.
-
Analyze the information to determine the feasibility of these
goals, objectives and needs.
-
Make a recommendation to help meet your financial goals.
-
Provide good service year after year, by letting you know
how your plan is performing relative to your objectives -
it's a long-term relationship.
