The battle over term versus permanent life insurance need not be a battle—there are appropriate uses for both of them. BUT, permanent life insurance is likely over-sold because of the handsome commissions received by selling agents. Watch this new video to help determine whether you should be considering permanent life insurance or handling your insurance needs with term life.
The reason permanent life insurance products seem expensive is because they are. A few years ago, I purchased a new $1 million 20-year term life insurance policy with a premium of under $500 per year. I knew permanent life insurance was more expensive, but I was curious how much more expensive, so I quoted comparable whole life, universal life and variable life policies. The variable and universal policies were ten times the amount of premium and the whole life was twenty times the term premium! (Please note the difference in premiums will vary for each person, depending on age and health.)
But what is the difference between term and permanent life insurance? Regarding term life insurance, you pay an insurance company to transfer the risk that you will die during the stated term of the policy. If you have a 20-year term policy, your premiums are guaranteed to stay the same for twenty years, and if you die during the 20 year period, the insurance company pays the death benefit to your named beneficiaries. Typically, by the end of the term your need for life insurance is gone.
Permanent life insurance is substantially more expensive for two reasons: First, while term policies are primarily created to last only for a finite period of time that will likely end before you die, permanent polices are often designed to exist until you actually leave this earth. This dramatic increase in the likelihood that the insurance company will be responsible to pay a death benefit means they need to charge more in premiums. Second, permanent policies often have a tax-privileged savings component attached to the policy, so a portion of your premium is set aside to accrue for your future use.
But the “investment” feature in a permanent life policy is rarely as effective or efficient as several others, like your 401k, IRA or Roth IRA, so fill those buckets first. You should also not consider permanent life insurance until you have substantial emergency reserves, all revolving debt paid off, education fully funded and money in the bank for large future purchases. Permanent life insurance can be a valuable tool for a relative few, but unless you have income of over $250,000 annually or over $1 million in assets, your life insurance needs are likely best met with term life insurance.
If you think that a comprehensive analysis of your retirement plan readiness is complex enough to require more than 90 seconds—you’re right. Considerations of spending patterns, flexible withdrawal rates, increased healthcare costs, tax preference and investing style require a bit more time. But a Retirement Stress Test, to give you an indication of whether or not you’re in the ballpark? That we can handle in under 90 seconds. Take a look!
What do a used car, an old television with rabbit ears and an annuity policy have in common? You'll have to see in this new 90 Second Finance video in which I discuss the Economic Bias of the commission-only financial advisor.
Last week, I introduced the topic of Economic Bias in the financial advisory realm. I discussed each of the three primary compensation models for financial advisors, and this week we take a closer look at the Economic Bias of those who earn their compensation solely from commissions.
I'd love to hear your feedback and any experience you may have had to support OR contradict my thoughts.
After a great September of guest posts from internationally recognized bloggers and authors[i], I’m going to spend the month of October turning a constructively critical eye toward the very business of which I’m a part—the realm of financial planners and advisors.
I’ll be tackling this territory in 90 Second style, beginning with an examination of the three primary compensation models into which nearly every financial advisor fits. And in keeping with my 2011 resolution, I can pledge that each of these video snippets DOES fall within my prescribed 90 second timeframe!
[i] If you missed any of the guest posts, check them out: musical philanthropist/author,Derek Sivers; travel-hacker/life blogger, Chris Guillebeau; personal finance blogging pioneer, J.D. Roth; and financial artist/industry agitator, Carl Richards.
In our second 90 Second Finance installment on the topic of Economic Bias—a conflict of interest where money is involved—we tackle the bias in the financial realm most often stereotyped: the life insurance agent. There are many great, trustworthy agents out there, but there’s no denying their Economic Bias is a big one. Of course, it might not be what you think it is…
(Click HERE if you missed the introductory 90 Second Finance video on Economic Bias.)
In 2010, I released a series of videos with the help of my friend and audio/visual enthusiast, Ben Lewis, entitled Finance in 90 Seconds or Less. The attempt was to force me to encapsulate meaningful and substantive lessons in personal finance with the aid of a whiteboard in 90 seconds or less. I FAILED! We released 14 of these 90 Second Finance videos and I think no more than two of them fell under the 90 second allotment. Educational they may have been, but I called myself on false advertising.
So I’ve made a resolution in 2011 to continue the series, BUT to only release those videos that are, indeed, 90 seconds or less. (We’ll continue to produce some longer “feature” videos, like Making Financial Music, but the 90 Second series will carry this mandate.) So far, so good. We’ve recorded three videos and I’m batting a thousand! Here’s the first with three actions you can take to avoid panicking, even when market or economic news seems to call for it.
People tend to know the commercials for their car insurance company better than they know their coverage, so here’s a fly-by primer of how to understand your auto insurance with an extra special surprise at the end that’s bound to make you laugh.
IRA is the most often used acronym in all of personal finance, but what the heck is it (Individual Retirement Account)? And when should I use a Traditional IRA or a Roth IRA? And, by the way, what is the difference between the two? The answer:
Unfortunately, the "financial planning process" has the unintended consequence of rushing YOU (and the financial planner) through the most important steps of the process in an effort to get the planner paid the quickest. See how in "The Financial Planning Timeline in 90 Seconds."