American consumers face a staggering array of financial options in their lives. Investment, legal, and risk management considerations continue to multiply decade after decade. However, many of the options available aren’t great choices. In the world of life insurance, there are three products that stand out for not being suitable for most families. Although each of these policies can help in certain limited situations, they are generally too expensive, strictly useful, and occasionally not sold by insurance agents.
Mortgage life insurance:
Mortgage life pays your home in the event of death. Why a consumer needs an insurance policy that pays only the mortgage is not known to me. By comparison, a simple life that can be taken out in an amount to cover a mortgage, Mortgage Life tends to be extremely expensive, sometimes fabulously overrated. In addition, by their very definition, the life benefits of mortgages generally decrease when the mortgage is paid overtime.
In comparison, a term insurance policy taken out with enough death benefit to cover the entire mortgage will be paid to survivors as you see fit. So they can decide how best to use the money. There are some situations where mortgage life insurance can be a good idea, such as when the main householder is uninsurable. Otherwise, for everyone else, consider Term.
Life insurance for children:
The point of life insurance is to provide an emergency financial sum in case of premature death. Life Ins. dollars should be used to replace lost income. Children generally don’t have an income; therefore there is no financial reason to take out life insurance for the child.
The smartest option is to use the cost of a children’s life insurance policy to supplement one of the parent’s lifetime policies or to put the money into a college savings plan – like a 529.
Life insurance policies for children are often sold with the idea of guaranteeing child insurance once the child reaches the age of maturity. The problem with this idea is that children’s life insurance policies (as they are often known as) are not written in amounts that will be very useful once they reach adulthood.
Skip the policies on children’s lives and use your money wisely elsewhere.
Life insurance with cash value:
Cash value insurance has several names: Whole, Universal and Variable Life. There are multiple other derivatives of these names. Although their appeal may be high, cash value life insurance policies are rarely worth the additional money needed to acquire them.
The variable life, which contains a stock exchange component, can only be sold by registered consultants. Whole and universal, which cannot require consultants, is presented 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 expensive product that is almost impossible to shop for. Add in the high fees and confusing legal language and it’s no wonder why Suze Orman, Dave Ramsey, and Clark Howard all agree that cash value insurance plans are a bad option for most Americans.
The smarter alternative is to look for a long-term life policy that meets the needs of both you and your family. Both spouses, whether they work or not, could probably use some form of long-term insurance.
By avoiding just these three life insurance products, your family could save tens of thousands of dollars a year.