The following post was written by Liran Hirschkorn. He is an independent life insurance agent. He helps individuals shop for life insurance, and he also specializes in helping those previously declined get approved for coverage.
As a life insurance agent I often see other agents who don’t always make the best recommendations for their clients. Unfortunately, the insurance industry is based on commissions and there are agents that can’t resist the lure of extra money in their pockets. I’ve written this blog post to make you aware of what to avoid when it comes to policy types.
As a consumer, you must understand the purpose of life insurance before you run out and purchase the biggest and shiniest insurance product. Most of the time I recommend term insurance, because it’s cost effective and will provide for your family when you are no longer around. While there is sometimes room for other policy types, here are other types of life insurance you should never buy.
Types of Insurance That You Shouldn’t Get
You’ve probably seen ads touting the merits of guaranteed life insurance all over the television- especially if you watch late night shows. The catch phrase is “you’re guaranteed a policy, no matter your age or physical condition.” Taken at face value, these policies might seem like a light at the end of a dark tunnel of rejections. But a closer inspection reveals some disconcerting flaws.
In the first instance, there’s the cloudy issue of the payouts. Most guaranteed life policies will simply return your premiums to your dependents if you die within the first two years of the policy. Therefore, it’s pointless to get such a policy if you’re suffering from a terminal illness and expect to die soon. Besides that, the inadequacy of the low death benefit is compounded by expensive premiums.
A guaranteed issue policy only makes sense if you’re in dire need of insurance and cannot get coverage elsewhere. Ask the provider about the exclusion period, and proceed with the policy only if you believe you can live beyond that period. Otherwise, put your money in the bank or invest it on low-risk investments like bonds or money market funds.
Life insurance for children
Purchasing life insurance for your children is by and large, a waste of good money. That’s because children are born healthy and stay healthy for a very long time. And because they don’t earn any income, there’s no reason to purchase insurance for kids. Not insuring your kids doesn’t mean you love them any less. It simply means you’re smart enough to put that money elsewhere- like towards the college fund they’ll need in a few years. If you still really want to make sure they have something, you can add a cheap child rider when you buy your term policy.
Travel or accident insurance
Travel insurance is inexpensive with good reason. Most travelers arrive at their destination without mishap. And it certainly doesn’t help much if you wind up in a tragic plane crash and die. Your family won’t need that extra payout on top of your life insurance. Rather than spend extra money on travel insurance, you might be better off taking that money to upgrade to first class and enjoy your flight.
Whole life or universal life
Despite what many agents tell you, life insurance should be used as a tool, not as another asset to add to your investment portfolio. The premise of universal life policies is that you’re required to pay higher premiums so the insurance company will invest the extra money on your behalf. Apart from the added cost of the policy, universal/whole life insurance is not usually beneficial because the expenses reduce the value of any interest gained.
People who invest in whole life policies usually have little to show for the money they invest. Insurance companies invest the money in plush office buildings and expensive ads – that serve little benefit for the policyholders. If you foresee a problem with estate-tax, then whole life policy may be beneficial. But apart from that, it’s a complete waste of money.
Life insurance is a worthwhile investment when you use it for its intended purpose. In my agency, I recommend my clients purchase term life coverage to protect their family, and ignore the slick ads offering guaranteed life, travel insurance, whole life, and life insurance for children because they’re policies you can do without.
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