Global Courant
American consumers face a bewildering array of financial options throughout their lifetime. Investment, legal and risk management considerations continue to multiply decade after decade. However, many of the available options are not great choices. In the world of life insurance, there are three products that stand out because they are not suitable for most families. While any of these policies might help in certain limited situations, they’re all generally overpriced, barely usable, and occasionally missold by insurance agents.
Mortgage Life Insurance:
Lifetime mortgage pays off your home when you die. Why a consumer needs insurance that only pays off the mortgage is beyond me. Compared to a simple term life that can be taken out for an amount to cover a mortgage, Life mortgage is usually extremely costly, sometimes fabulously overpriced. In addition, the benefits of Mortgage Life generally decrease as you pay off your mortgage overtime.
By comparison, a term life insurance policy purchased with enough death coverage to cover the entire mortgage will pay out to the next of kin at their discretion. They can then decide how best to use the money. There are certain situations where term life insurance may be a good idea, such as when the main breadwinner is uninsurable. Otherwise consider – for all others – Term.
Child life insurance:
The point of life insurance is to provide an emergency amount in the event of an untimely death. Life ins. dollars must be used to replace lost revenue. Children generally have no income; so there is no financial reason to take out life insurance on your child.
The smarter option is to either use the cost of a child life insurance policy to supplement one of the parents’ term life insurance policies or put the money into a college savings plan, such as a 529.
Oftentimes, child life policies are sold with the idea that it guarantees child insurance once the child comes of age. The problem with this idea is that child life insurance policies (as they are often called) are not written in amounts that will be very useful once they reach adulthood.
Skip the child life policy and use your money wisely elsewhere.
Cash Value Life Insurance:
Cash value insurance goes by different names: Whole, Universal, and Variable Life. There are several other derivatives of these names. While its appeal may be strong, cash value life insurance policies are rarely worth the extra cash it takes to acquire them.
Variable life, which contains a stock exchange component, can only be sold by registered advisors. Entirely and universally, requiring no advisors, are being pitched by insurance agents across the country as an investment mixed with insurance. The main problem is that mixing these two components leads to a confusing, complex and overpriced product that is almost impossible to buy. Add in the high fees and confusing legal language and it’s a wonder that Suze Orman, Dave Ramsey and Clark Howard all agree that Cash Value Insurance plans are a poor option for most Americans.
The smarter alternative is to shop around for a highly rated term life insurance policy that fits the needs of both you and your family. Both spouses, working or not, could probably use some form of inexpensive term life insurance.
Just avoiding these three life insurance products can save your family tens of thousands of dollars a year.
Consumer Warning! – Three types of life insurance you probably don’t need
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