There are many things we all hate paying for. Insurance is one of those things. What is worse is talking to the insurance agent who will try and sell you all kinds of things that may or may not fit into your financial plan. Since I used to work for a company whose main focus was life insurance, I quickly caught on to the ideas and themes that life insurance agents don’t tell you. BTW, yes I still sell life insurance but as an independent agent now.
They work on commission.
How else do you think they get paid, and why else would they try to sell you products you don’t need? Commission! As most of us understand a salesperson who gets paid a commission will tend to lean towards the product that makes them the most money. There are agents who don’t operate by this idea, but working on commission, is an eat what you kill world. Don’t be afraid to ask multiple questions when they try to sell you something, my favorite being “so when would this not be a good idea?”
You may be over insured.
The bigger the amount of insurance sold, the more money in the salesman’s pocket. There are a handful of items that you shouldn’t count on as life insurance. For example, your kids don’t need an inheritance. If they can’t manage the money they have now, how will more solve the problem? The flip side to this if you are a young single professional or recently married the need for life insurance is minimal if there is any need at all. If something were to happen what debt would your spouse have to pay off, or what lifestyle would they have to give up?
You don’t need insurance on your kids.
One of the worst ideas you can do is get a life insurance policy on your kids. The agent will try and convince you that buying whole life at such a young age and paying premiums for them will be so much cheaper than when they turn 25 and try to get their own coverage. Insurance isn’t taken out to provide a benefit for later use. Insurance is meant to make you whole if something happens. Why would a child need his/her own life insurance policy? What kind of resource would you lose if they were to pass away?
Side note, you should consider life insurance on yourself when you have kids. College funding is definitely an option to include in the total amount of coverage needed.
Whole life isn’t a good investment.
Whole life insurance is one of the weakest investments and insurances. By getting whole life you not only have to pay an absorbent amount in premiums, lowering your potential to afford coverage, but a majority of your premium goes to pay the investment fee. Also, see the first point on life insurance agents who work on commission. Pushing whole life lines their pockets, while yours gets emptied.
Cash value is a long time coming.
The idea of whole life insurance is you keep the insurance your entire life, and thus your cash value grows year after year. This is a great concept and all, but you don’t need life insurance when you retire and you most certainly will not have a majority of the cash value that the illustration shows.
Is buying term and investing the difference really better?
Yes! Life insurance agents who sell whole life insurance hate this saying. Term life insurance is crazy cheap compared to whole life insurance. That’s why it can work out to pay for the amount of term insurance you need and invest the difference which in the end will leave more money in your pocket than the insurance agents’!
What’s your experience been with insurance agents? What to see how much you need? Use this life insurance analysis tool I created, here!