Do You Need Life Insurance?

I recently read a discussion forum about this important question: Do you need life insurance? In this forum, there were some incredibly intelligent people that ranged from financial advisors, fee for service advisors, life insurance agents, financial bloggers and even do-it-yourselfers.

Life insurance has forever been a controversial topic of discussion. The roots of negativity stem from the stereotype of the plaid suit salesman, who goes from door to door pitching the merits of life insurance. Traditionally, it was more about making the sale than incorporating life insurance into a complete financial plan.

Related article:  Financial Advisor or Salesperson

Happy FamilyWhile some of these ‘salespersons’ still may exist, they may not be as transparent. The life insurance agent today, can often hide behind the financial planner title or a financial planning designation.

Critics of life insurance also question the commissions that these agents make. In many cases, life insurance can pay exorbitant commissions and bonuses. To be fair, there are some life insurance products that pay more commissions than others. No matter how you look at it, life insurance is an important part of the overall financial plan and simply one of the financial tools in the toolbox. The hope is that there are many good life insurance agents in addition to the bad ones.

Good life insurance agents are typically professionals who incorporate total financial planning.

Related article:  What is total financial planning?

How do you find a good life insurance agent?

When looking for a financial advisor, there are some key things to consider.  The first thing you want to know is how long they have been in the business. While years of experience does not guarantee success, remember that 75% of life insurance agents do not make it past 12 months in the business. Next, you should know if your life insurance agent can provide a range of products from a range of companies. No single company has the corner on the best products all the time, so it is important to shop around or find someone that can do it for you. Finally, watch for the CLU designation (Chartered Life Underwriter). This designation signifies a financial planner with advanced knowledge in life and health insurance.

Start with the basics

The biggest problem with life insurance is that it involves emotion in the decision making process. Yet, good financial decisions are founded on logical processes and good research.

Start with the golden rule of life insurance “Only buy insurance if you need it.” There may be many reasons why you might need life insurance. The reasons may not be completely logical. Life insurance is what I term the unselfish benefit. Those that purchase life insurance may not be the ones that reap the true rewards of the product.

Related article:  How much life insurance do you need?

Some of the reasons you might buy life insurance are to pay off debts, replace income, cover funeral expenses, provide a legacy, donate assets to a charity, or cover a final tax bill on the estate. The most obvious need comes if you have dependents that rely on your current income.

Buy term, invest the difference

Just like in investing, rules of thumb work many times but they do not work all the time. While I do believe that buying low cost term insurance is a very smart strategy, it may not apply to everyone all the time.

It all depends on Needs, Wants, Goals and Means. From there it is possible for me to determine what kind of Insurance they should buy. Life Insurance is not a “One-Size-Fits-All” solution. To many people make general assumptions and apply rules of thumb out of those assumptions.

The bottom line

So, do you need life insurance?  Just like any purchase, there will be many issues that will impact you final decisions. I feel it is more important to get the right amount of insurance before you get into the discussion of what type of life insurance.

Related article:  What is the best type of life insurance?

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

4 Responses to Do You Need Life Insurance?

  1. years ago a financial planner/life insurance sales rep came to the house and sold my wife and I on life insurance… not for us — but for our 3 and 5 year old kids! well, 15 years later and a fully paid for $100,000 plan….this was not only good protection for them but a great investment. So yes, life insurance “IS” for everyone….
    jon d

  2. My father purchased a small 20 pay permanent policy on me when I was young and it was a good thing he did because I ended up getting Type 1 Diabetes. Forget about getting life insurance with that disease, it would be too expensive to make sense!

    However, the policy he bought allowed me to purchase $100,000 of extra insurance at 3 points in my life when I turned 24, 27, and 30 years of age. I took advantage of all 3 and purchased 20 year term at 27 and 30 years of age. I converted the policy I bought at 24 to whole life permanent. I plan to keep that one my entire life as a guaranteed tax free inheritance for my kids so if I decide I want to spend the rest, at least they will have something!

  3. One of the agents recently told me so many things about Life Insurance and urged me to have one. When I pointed out the low return compared to safe deposit policies available in financial market, he said that’s where I’m missing the point. If something happens to me in the near future it will take care of my family. When I reasoned that I earn enough from my trading from Corner Trader and can save enough money through safe investments and accumulate enough corpus for my family’s secure future, he simply said, “You’ll understand when you face the situation in real life”. Currently, I’m in two minds. Can you help please?

  4. A lot of individuals do not perceive the uses of insurance all right. Term insurance is for shielding your family from loss throughout the term within the case of your death, usually wont to pay off the mortgage. many folks UN agency area unit retired or whose assets area unit already secure do not invariably would like one amongst these policies.

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