Keep it simple, stupid
- Design principle, U.S. Navy
Life insurance can be very simple or very complicated. At its base level, you pay a fee, called a premium, each year in exchange for the insurance company paying your beneficiary should you pass away during the term.
This very simple, clean transaction is as deep as most people need to go into life insurance. It can be used to provide for your young kids, your spouse, business partner, or other people who rely on you for financial support.
We call this “income replacement.”
More complex offerings tend to include investment aspects that promise more stable growth than the stock market. The problem with this insurance is that it rarely beats a combination of stocks and bonds held directly and it comes with a lock-up of your funds that you don’t have to suffer in an investment portfolio.
There are also other combination offerings that include long-term care benefits which can be helpful in exactly the right circumstances.
But all these products can only be sold by commission-based sales people who, quite obviously, wish you to purchase the highest commission products. It’s important to have a guide on your side when trying to navigate these waters.
So, what do you think?
Have you been tempted to buy “steady value” insurance policies? Do you shy away from life insurance completely because the conversation always seems to drift to these confusing and expensive products?
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