Is Life Insurance a Scam?

Over the last 12 months life insurance questions were one of the leading reasons that former players called the Financial Helpline. Most popular was, “Is life insurance a scam?” – And, it’s a legitimate question. We all know that our life, our ability to earn an income, is our #1 asset, so you have to protect it if people are counting on you. On the other hand, there are so many different types of insurance and some are so complex that it can really be confusing to figure out what you need (and don’t need).

Let’s take a brief look at different types of insurance:

  • Term Life Insurance: This is the most basic form of life insurance. This is where you pay a premium to the insurance company and if you die at any time during that contract, or “term,” then they pay your beneficiaries the stated death benefit. It is the cheapest form of life insurance in most cases, but if you outlive the term you got nothing other than the peace of mind you had.
  • Permanent Insurance: This comes in many shapes and sizes such as whole life, universal life and variable universal life. The link below will give you more details but in general a permanent policy is just that, permanent. You pay a premium not for a contractual term but for many years, possibly the rest of your life or until a certain amount has accumulated in the cash value of the policy. Since these policies build a cash value they do have the flexibility of taking loans or making withdrawals from that cash value, letting the earnings pay the premiums or even buying additional insurance. These policies are designed to always be there and give more options. Of course, with that permanent status and options come much more complexity and generally significantly higher costs.

So if you just want a little more coverage for the next 15 years while your kids are still at home then a term policy may be right for you. For those looking for tax free investment growth or funding a life insurance trust then possibly a permanent policy could be the better choice. If you have questions about pros and cons of different life insurance plans, join your peers.i

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