Understanding Life Insurance - By: Justin Lukasavige

Each time I meet with a client we discuss life insurance needs. I am amazed at how little people know about the insurance they carry. We make it a priority that each of our clients understands any type of investment or insurance product before they buy it.

For example, I commonly see a lot of people carrying cash value insurance (or some derivative). The only type of life insurance we recommend is level-term life insurance.

It's typical that I meet with a middle-aged couple who are paying nearly $300 per month for only $200,000 worth of coverage. If that policy were converted to level-term insurance, that rate would instead be $300 per year and would instead buy about $500,000 worth of coverage.

Cash value is typically a high-commission generating product for the salesmen who sell it, and they are usually very good at selling it. Normally they will push the fact that the policy builds up a cash value that you are able to cash in. The stated rate of growth is usually stated around 6%, however after fees are paid to the insurance company, studies have shown that rate to be only 2-3% and sometimes much lower. If you were to buy a $100,000 cash value policy and over the years it builds up a cash value of $10,000, you can cash that in at any time. However, if you were to die, your beneficiary would only receive the face value of $100,000. What happens to that $10,000 cash value that built up? The insurance company keeps it.

So the moral is to NEVER buy cash value insurance. Always buy good level-term life insurance where the policy is 6-8 times your annual salary. For stay at home parents, I also recommend getting coverage at around $100,000 - $150,000 (times the number of children you have) on themselves. So a stay-at-home mom with two kids might carry a policy of $200,000 on herself.

Also remember to chose a term that will carry you through to a point where you can afford to insure yourself. The point of any type of insurance is to pay someone else to take on a risk that you cannot afford yourself.

If you'd like quotes from trusted services that we have used, feel free to check these out...

Ins Web
Zander Insurance

About the Author

Justin Lukasavige is a Personal & Business Coach and owner of Lukas Coaching. Visit http://www.lukascoaching.com/resources.htm for a ton of free tools to help you improve your health, finances, business, career & life! For more free columns and articles, visit http://www.lukascoaching.com/articles.htm

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