As I’ve mentioned in previous posts, over 800,000 individuals in the U.S. refer to themselves as “financial advisors.” However, only approximately 7.5% of those are Certified Financial Planners, or CFPs. Further, only approximately 1% are fee-only CFPs, meaning they never collect commissions on the products they recommend. All of the advisors at Net Worth Advisory Group are fee-only CFPs, or candidates to become CFPs.
These days, life insurance salesman refer to themselves as financial advisors. Yet, what advice do you think an insurance salesman will provide you with? Of course, they will recommend you buy life insurance. To make matters worse, the insurance industry has managed to take something quite simple and complicate it to a point where not even all the people who sell it fully grasp the implications of what they are selling. So what does an objective financial planner think about life insurance? When is purchasing life insurance appropriate? Allow me to provide my opinions and explain the difference between various life insurance products.
Life insurance comes in many forms. Some policies slowly develop a cash value, meaning you can surrender your policy and collect the a sum of money. These policies are commonly presented as an investment. But beware: you should always think of life insurance as an expense. When you purchase insurance, you are buying something: peace of mind. Insurance is a way to ensure the financial security of the breadwinner’s family until the family can accumulate enough savings and investments to make insurance no longer necessary. For this reason, insurance is very frequently a necessity for younger families, and commonly less necessary for more mature families.
Policies with 100% insurance and no cash values are called term insurance. This is the type of policy most people picture when they think of insurance. You simply pay the premium, and collect a benefit in the event of death. There is no savings element to term insurance, but remember, in most cases you are buying insurance to ensure your family is taken care of if something happens to you. In most cases there are more efficient ways to save and plan for retirement.
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I’ll post more about insurance throughout the week, but remember this piece of advice: never debate insurance with insurance agents. They practice frequently, and you do not. They find ways to give “apples” answers to your “lawn chairs” questions and “yes, but” you to death. It is a no-win scenario. Always speak to a financial planner who does not stand to financially gain by recommending you purchase insurance.