FINANCIAL PLANNING 101
Courtesy of Milan J. Torres, CFP ® , CRPC ® Financial Planner
Lincoln Financial Advisors Corp. 18400 Von Karman Avenue, Suite 550 Irvine, CA 92612 949-623-1764
Milan Torres@LFG.com www.MilanTorres.com
MISCONCEPTIONS ABOUT LIFE INSURANCE Why Too Many People End Up With Bad Policies
ife insurance is an important piece of financial planning, but I often find that it’s one of the most misunderstood. There’s no question that insurance
companies provide valuable services that all of us need in case of an emergency, and life insurance is no exception. The problem is that insurance companies also don’t have a fiduciary responsibility to do what’s in the best interest of their clients. They market aggressively, and if you don’t do your homework, you can end up with a policy that doesn’t make sense for you. Life insurance comes in two major categories: term and permanent. There are many subtypes under the permanent umbrella, including whole life, permanent, variable, and universal. Regardless of the specific type, many people promote permanent insurance as an investment. These policies come with a cash value benefit that looks like an attractive way to make some extra money. But when you take a hard look at the numbers, a different picture emerges. For example, let’s take a look at a permanent life policy that costs $500 per month and carries a death benefit of $750,000. Of the $500 you pay, one-third goes to your insurance, one-third goes to fees, and the final third goes to the cash value. This final third will grow at a steady rate, but it will never be enough to justify the third you lose in fees. Too many clients I talk to are saddled with these old policies that are providing them with little benefit at all. A much simpler and easier way to grow this money is to buy term life insurance for a third of the cost and invest the remaining two thirds
yourself. The advantages of this alternative are numerous. First, you get to invest your money in the same way as the permanent life insurance policy would have, but at a lower overall cost . Second, your investments will be more liquid, and you won’t need to worry about preserving your cash value to pay for premiums down the road. On top of all of this, you can convert almost any term policy to a permanent if it makes sense at a later point in your life. Now, there are a few situations where permanent life insurance is a better option. Here are three scenarios that are pretty common: 1. You’re an older couple who relies on Social Security benefits and are invested purely in the death benefit.
Everyone’s situation is different, but in general, these cases are the exception, not the rule.
If you’re reading this and feeling the hairs on your neck stand up, don’t panic. Even if you’re currently in a policy that makes little sense, there are ways to alter your strategy. As many couples age, they find they don’t even need life insurance at all anymore. The best way to move forward is to give me a call and talk about a plan that makes sense for you, your family, and future generations. Life insurance may be complicated, and there’s no denying that talking about unexpected death is scary. If you plan analytically and crunch some numbers, though, you can demystify this overwhelming concept.
2. You have a pension and are employing a strategy to maximize its value.
– Milan Torres
3. You have a huge estate and want to avoid probate and taxes.
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