American consumers face a bewildering array of financial choices throughout their lives. Investment, legal and risk management considerations continue to multiply decade after decade. However, many of the options available are not good options. In the world of life insurance, there are three products that stand out for not being appropriate for most Families. Although each of these policies may help in certain limited situations, they are all generally overpriced, unhelpful, and sometimes undersold by insurance agents.
Mortgage life insurance:
Mortgage life pays for your home in the event you die. I don’t know why a consumer needs an insurance policy that only pays the mortgage. By comparison, a simple term life insurance that can be taken out in an amount to cover a mortgage, mortgage life insurance tends to be extremely expensive, sometimes fabulously expensive. Also, by its very definition, Mortgage Life benefits generally decrease as you pay off your mortgage over time.
By comparison, a level term insurance policy purchased with enough death benefit to cover the entire mortgage will pay survivors as it sees fit. They can then decide how best to use the money. There are certain situations where mortgage life insurance may be a good idea, such as when the primary breadwinner cannot be insured. Otherwise, for all others, consider Term.
Children’s life insurance:
The purpose of life insurance is to provide an emergency financial sum in the event of eternal death. Life Ins. the dollars must be used to replace lost revenue. Children, in general, have no income; therefore, there is no financial reason to have a life insurance policy on your child.
The smartest option is to use the cost of a child life policy to supplement one of the parents’ term life policies or put the money away in a college savings plan, like a 529.
Child life policies are often sold with the idea that they guarantee child insurance once the child reaches the age of maturity. The problem with this idea is that life insurance policies for children (as they are often known) are not written in amounts that will be very useful once they reach adulthood.
Skip child life policies and use your cash elsewhere wisely.
Cash Value Life Insurance:
Cash value insurance goes by several names: whole life, universal, and variable. There are many other derivatives of these names. Although the appeal of them may be high, cash value life insurance policies are rarely worth the extra money needed to purchase them.
Variable life, which contains an equity component, can only be sold by registered advisers. Whole and Universal, which do not require advisors, are presented by insurance agents across the country as a bundled investment with insurance. The main problem is that mixing these two components leads to a confusing, complex and expensive product that is almost impossible to compare. Add in the high fees and confusing legal language and it’s no wonder Suze Orman, Dave Ramsey and Clark Howard generally 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 policy that fits the needs of you and your family. Both spouses, working or not, could probably use some form of affordable term insurance.
By avoiding just these three life insurance products, your family could save tens of thousands of dollars a year.