Life Insurance: 4 Essential Questions

https://www.fidelity.com/viewpoints/things-to-know-about-life

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3 MORE Life Insurance Myths - Part 2

Last week (December 22) we covered the first three common life insurance myths. Here are the next three:

4.“Buy term and invest the difference.” Mitch Kenvin, an advisor in Dallas with Personal Economics Group and an agent with American United Life has been encountering this myth for 20 years. It’s an interesting notion, he says, but it just doesn’t work in reality.

“People, especially with term insurance, run low on money, lose a job, and it’s always the first bill to go. They’re going to pay the mortgage before they pay their life insurance premium. The theory of buying term and investing the difference is fine except that it never comes to fruition.”


5.“Seniors don’t need life insurance.” This myth pops up frequently in the financial media: Once you’re close to or in retirement, you can drop your life insurance. That’s often a bad idea, says Donald Lippencott, MSFS of the Lippencott Financial Group in Port Jefferson Station in Long Island.

“I have sat with clients for the last 27 years, and the ones that were 45-years-old 27 years ago, who are now knocking on the door of 70, are wishing that they had more and better types of coverage,” Lippencott says.


6.“Every senior needs life insurance.” This is the flip side of number two. Both involve generalizations that often don’t fit a particular situation. The advisors who buy into this myth start with the life insurance product, and then work back to the client’s needs, says Dan Forbes, CFP in Providence, R.I. Forbes says a more suitable approach is to identify the need, and then determine the most appropriate method or product to meet that need.

That approach can lead to the conclusion that some older clients don’t need life insurance, he says:

“If you’re not protecting a pension or if you’re not interested in leaving a sum of money to your beneficiaries or heirs, or if you haven’t recently taken out a long-term mortgage at retirement, it can be hard to justify having a life insurance policy.”

Here's the link to the first 3 life insurance myths: 1, 2, and 3...
3 Life Insurance Myths - Part 1

3 Life Insurance Myths - Part 1

Life insurance is a fairly straightforward financial product. Nonetheless, there are numerous myths about its purpose, features and cost.

1. “I don’t believe in life insurance.” This myth is based on doubts that life insurance has value, and the prospect will encounter a situation where he or she might benefit from the coverage. There’s often something deeper behind that myth, says Matt Dobbie, president and CEO of uFinancial, a MassMutual agency in Camp Hill, Pa.

“I think part of that myth comes from the fact that clients struggle with the reality that something can happen, and if it does, there are people in their lives who will be negatively impacted,” Dobbie says.

2. “Seniors can’t get life insurance at a reasonable cost.” It’s easy to understand this myth’s origins. Fran Jacoby, CLU, ChFC is a financial planner for Prudential in Indianapolis who encounters this notion frequently.

“When they reach, let’s say, 60-years-old, they think they can’t get life insurance at any reasonable cost,” she says. “They just believe it’s so expensive that they don’t want to think about it. [But then] they see that actually premiums are really quite affordable and that you can get life insurance at age 60.” Seniors also start worrying they can’t qualify for coverage.

“If your blood pressure is medicated and you are stable, we’re more than happy to give you really good rates” Jacoby says. “But people automatically think ‘I have high blood pressure. That’s a major illness; they won’t give me any coverage.’ But that’s not the case at all.”

3. “I can’t afford it.” This myth forces an advisor to get creative in freeing up resources. That may require reviewing the client’s budget, restructuring their debt, determining if they have nonproductive assets or reducing their tax liability to free up cash flow.

“A good financial advisor will help you find the dollars,” Dobbie says.


Here's the link to 3 more life insurance myths: 4, 5 and 6...
3 More Life Insurance Myths - Part 2

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Study: 2 Out of 3 Americans Flunk Finance Quiz...

Most Americans have an inadequate understanding of financial products and concepts, according to a new study conducted by Mathew Greenwald & Associates, Inc., Washington.

The research revealed that 69%! would receive a failing grade on a quiz about financial products and concepts.

When asked to rank the importance of understanding their own personal finances, 79% gave it a 7 or above on a scale of 1 (“What I don’t know won’t hurt me.”) to 10 (“I feel the need to know all I can about my financial situation.”).

Among the report’s other findings:

35% of respondents knew that the average rate of inflation is closer to 3% than 6% or 9%.

50% believed (incorrectly) that bonds offer the best protection against inflation compared to stocks.

32% knew that index funds seek to match the returns of stock or bond benchmarks, but 34% acknowledged they had no knowledge of how index funds work.

35% knew that money market funds are comprised of short-term investment vehicles.

27% realized that permanent life insurance can pay dividends.

49% believed (incorrectly) that term life insurance is more likely to have cash value than permanent life insurance.

57% thought annuities were only sold by banks.

61% thought Social Security funds are invested in the stock market!!!

44% did not realize they paid into Social Security!!!

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