WHAT YOU SHOULD KNOW ABOUT LIFE INSURANCE –

“THE MISUNDERSTOOD ASSET”

With 40+ years advising clients regarding their financial plans, I am continually amazed at how little knowledge people have regarding the use of life insurance as a part of their financial plans.

Life insurance, like any other form of protective coverage is intended to protect against loss.  Life insurance is money, pure and simple.  You are shifting the risk of loss off of yourself onto an insurance company to deliver money when a loss occurs.  Pure and simple.  I have never had a widow or widower tell me their spouse was over insured or “insurance poor”.

Over the years the media has distorted the real meaning of life insurance.  Several talking heads that come to mind make a very good living distorting the true use of life insurance as a financial tool.  The media gets caught up in life insurance – vs – ?.  You name the product.  Many media outlets can’t profit from the subject unless they bring controversy to the table.  “Controversy” sells, period.

Life insurance is money that is delivered at the time of loss to the named beneficiary.  It replaces income, secures a child’s education, pays off a mortgage, secures the line of credit for a business, etc.  When money is needed, life insurance can be one of the most cost effective ways of providing capital at the least cost to a family or business.

Life Insurance is not for the insured, it is for the beneficiary.  If you understand the “why”, then you can address the “reason”.  We have been brainwashed by the media to get bogged down with all of the “controversy crap” that is regurgitated out of the TV, Radio, Newsprint, etc. without any explanation as to “why”.  In my opinion we have failed to think for ourselves and choose to act on information from a poorly vetted source.  I have witnessed too many situations where in the end there was not enough money for the family or business to continue on.

Ok, you maybe sense my frustration with the problem.  In this and the following blog posts I will be bringing the truth to you so that you can make your own decision as to the following:

1. Do I need life insurance?
2. If so, what type?
3. What amount?
4. Which company should I choose to provide the coverage?

But first, here are a few basics that you may or may not be aware of:

1. A life insurance death benefit, if properly structured, should be paid to the beneficiary totally “income tax free” . As I like to say, “It is not what you have, it is what you keep that is the most important”.
2. If you use a permanent form of life insurance that generates a cash value, your funds grow “tax deferred”, not “tax free” (more on this when I address using permanent, cash value, forms of life insurance).
3. You can access your cash value, without a taxable consequence, via policy loans.
4. The owner of the policy controls the policy.
5. The biggest mistake I see on older life insurance policies is the failure to keep the beneficiaries up to date. It is not what you meant to do, it is what you have done that takes precedent at time of claim.  I have seen a few former spouses benefit at the expense of the current spouse (this is NOT funny!).

In my next series of blogs I will go into each type of life insurance plan you can purchase with full details as to the advantages and disadvantages given the specific circumstance.