American Consumers face a bewildering set of financial options in their lifetime. Investment, Legal, and Risk Management considerations continue to multiply decade after decade. However many of the options available are not great choices.
In the world of life insurance, three products stand out for being not appropriate for most Families. Although each of these policies could help in certain limited situations, they are all generally overpriced, narrowly useful, and occasionally miss-sold by insurance agents.
Mortgage Life Insurance:
Mortgage life pays off your house in case you die. Why a consumer needs an insurance policy that only pays down the mortgage is unknown to me. In comparison to a simple term life which can be taken out in an amount to cover a mortgage, Mortgage Life tends to be extremely overpriced, sometimes fabulously overpriced. Besides by their very definition Mortgage Life benefits generally shrink as you pay your mortgage off over time.
In comparison, a level-term insurance policy taken out with enough death benefit to cover the entire mortgage will be paid out to the survivors as you see fit. They then can decide how best to use the money. There are certain situations when mortgage life insurance can be a good idea, such as when the primary breadwinner is uninsurable. Otherwise -for everyone else – consider Term.
Children’s Life Insurance:
The point of life insurance is to provide an emergency financial sum in the case of an untimely death. Life Ins. dollars should be used to replace lost income. Children, in general, do not have an income; therefore there is no financial reason to carry a life insurance policy on your child.
The smarter option is to either use the cost of a children’s life policy to supplement one of the parent’s term life policies or to stash the money into a college savings plan – such as a 529.
Often Children’s life policies are sold with the idea that they guarantee child insurance once the child reaches the age of maturity. The problem with this idea is that kiddie life insurance policies (as they are often known) are not written in amounts that will be very useful once they reach adulthood.
Skip the kiddie life policies and wisely use your cash elsewhere.
Cash Value Life Insurance:
Cash value insurance goes by various names: Whole, Universal, and Variable Life. There are multiple other derivatives of these names. Although the lure of them can be high, cash-value life insurance policies rarely are worth the additional money needed to acquire them.
Variable life, which contains a stock market component, can only be sold by registered advisors. Whole and Universal, which do not require advisors are pitched by insurance agents around the country as an Investment mixed with Insurance.
The major issue is that the mixing of these two components leads to a confusing, complex, and overpriced product that is almost impossible to shop around. Add on the high fees and confusing legal language and is it any wonder why Suze Orman, Dave Ramsey, and Clark Howard all generally agree, that Cash Value Insurance plans are a poor option for most Americans?
The smarter alternative is to shop around for a highly rated term life policy that fits the needs of both you and your family. Both spouses, working or not, probably could use some form of inexpensive term insurance.
By avoiding just these three life insurance products your family could save tens of thousands of dollars per year.