From the Desk of Guy Baker: Demystifying Life Insurance

From my earliest days in the insurance business, when I discussed insurance premiums with customers, I often heard, "I want to buy term and invest the difference." In other words, "I want to pay the lowest premium possible and use the savings to enhance my investment portfolio." Perhaps you've said this as well. Most people don't know that this approach has several potential problems.

First, to be clear, all?life insurance is term insurance. That's right. Whether someone purchases whole life, indexed universal life, or some variable life product, the core structure is term insurance. The second point is that while "investing the difference" might sound plausible, very few can invest the difference successfully over the long haul. They lose focus, make bad choices, or have other problems that thwart their good intentions. Finally, when the term insurance policy runs out and the premiums increase dramatically, most people drop the insurance because they cannot afford the higher premiums. They either go without insurance at that point or try to replace it but face new challenges – higher premiums due to age and health issues become a factor. So, people who buy pure term life insurance are statistically certain to end up with no coverage as they age unless they accept the higher premiums. Is that the best outcome?

Many people find life insurance to be very complex. They are mystified by how insurance is structured, how the varied options inside the contract work, and how the pricing algorithms are determined. Additionally, most people prefer to avoid discussing their demise, and the complexity makes the conversation even more off-putting. However, protecting one's family, business, or employer is a subject that is too important to ignore because of discomfort.?

Plenty of pundits have very defined opinions about the pros and cons of life insurance – amounts, type of coverage, and percentage of the budget. You can find these opinions easily on the web or cable business channels, especially regarding whether to buy term or permanent insurance. However, the assumptions are often inaccurate, and the logic misses major considerations. Opinions are easy if you don't have to deal with the consequences.

So, to keep the discussion simple, whether considering term insurance, whole life, universal life, indexed life, or variable life, four fundamental questions will always exist:?

1.???? If I plan to buy insurance, how much should I buy?

2.???? What is the right policy for me? (Term, whole life, universal life, variable?)

3.???? What will it cost now and in the future?

4.???? How long should I plan to keep my insurance?

Watch for answers to these questions in the next newsletters. ~~ Guy