American consumers face a bewildering array of financial choices throughout their lives. Investment, legal and risk management considerations multiply from decade to decade. However, many of the options available are not good choices. In the world of life insurance, there are three products that are not suitable for most families. Although each of these policies could be helpful in certain, limited situations, they are generally all overpriced, make little sense, and are occasionally mis-sold by insurance agents.
Mortgage life insurance:
A lifetime mortgage pays off your home if you die. Why a consumer needs insurance that only pays off the mortgage is unknown to me. Compared to simple term life insurance, which can be purchased in an amount to cover a mortgage, mortgage life insurance tends to be extremely overpriced, sometimes even staggeringly overpriced. Additionally, by definition, Mortgage Life benefits generally shrink as you continue to pay off your mortgage over time.
In comparison, term life insurance with enough death benefit to cover the entire mortgage will pay out to survivors as you see fit. They can then decide how best to use the money. There are certain situations where mortgage life insurance may be a good idea, such as when the primary breadwinner is uninsurable. Otherwise – for everyone else – consider Term.
Children’s life insurance:
The purpose of life insurance is to provide an emergency financial sum in the event of an untimely death. Life Ins. Dollars should be used to replace lost income. Children generally have no income; Therefore, there is no financial reason to purchase life insurance for your child.
The wiser option is to either use the cost of a child’s life insurance policy as a supplement to one of the parents’ term life insurance policies or to put the money into a college savings plan – such as a 529.
Child life insurance is often sold with the idea that it will guarantee child coverage once the child reaches adulthood. The problem with this idea is that child life insurance (as it is often called) is not purchased in amounts that will be very useful in adulthood.
Skip the child life insurance and put your money wisely elsewhere.
Life insurance with cash value:
Cash value insurance goes by different names: whole life, universal life and variable life. There are numerous other derivations of these names. Although it can be tempting, cash value life insurance policies are rarely worth the extra money required to purchase them.
Variable maturities that include an exchange component can only be sold by registered advisors. Complete and universal solutions that do not require consultants are offered by insurance agents across the country as an investment mixed with insurance. The main problem is that mixing these two components results in a confusing, complex and overpriced product that is almost impossible to buy. Add in the high fees and confusing legal language, and it’s surprising that Suze Orman, Dave Ramsey and Clark Howard generally believe that cash value insurance plans are a bad option for most Americans.
The wiser alternative is to look for highly rated term life insurance that meets the needs of you and your family. Both spouses, whether working or not, could probably take advantage of low-cost term life insurance.
By eliminating these three life insurance products, your family could save tens of thousands of dollars annually.
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