Life Insurance – Yes or No?
So, I like to read about what other investors do and how the manage their investments. I like to see what other people are doing and how much risk they are taking. Investing in anything can be really risky. Whether it’s a piece of real estate that loses significant value, or a stock that drops 67% 2 days after you buy it thanks to 200:1 reverse split… Anyway, to the topic at hand… Life insurance, do you need it or not…
Like investing, this is going to depend on how much risk you are willing to take. I see quite a few investors really slam different kinds of life insurance, especially whole life insurance plans, which I have… The main reason is due to high premiums and not a good enough return on your investment… I get it, but let’s break it down.
For the everyday average Joe, life insurance might not seem that appealing in our younger years. However, as we get older some of us start a family. Having a family can completely change your perspective on life. In my situation, we are a single income family and my income is still the baseline for how we invest (for now).
Here are a few popular insurance plans people choose.
Whole Life Insurance
Whole Life Insurance will provide a guaranteed return on investment, but it’s modest at best. It will build a cash value and the premiums are fixed. The returns are not the greatest especially when comparing it to something like an index fund. The premiums on these types of policies can be pricey as well, but the pricing will be based on your medical screening.
Flexible Premium Adjustable Life with Indexed Features
I personally have one of these policies. This particular policy has cash value and is invested in index funds. One of the things I like about these policies is that even if the index fund fails to perform, I am guaranteed at least a 2.5% return even if my index funds was 0%. The likelihood of that happening is slim, but look at the volatility of today’s market… who knows? These policies can also have an expensive premium. Thankfully our medical screening got us the best possible premium available.
Another benefit I like about this type of policy is that I can borrow from it whenever I need to. This can come in handy for future real estate investments if I am strapped for cash (though I will probably never do that).
Term Life Insurance
Term life insurance is pretty basic. You set a term limit (10, 20, 30 years etc…) and pay a premium every month until the term is up. I have a 30-year policy against my mortgage on my primary residence. Thankfully I was able to get a really good price for my rate thanks to the medical screening (vegetarian and most plant-based diet made my bloodwork phenomenal).
You need to be careful if and when you sign up for a any life insurance policy. Pay attention to the rate you are paying. Try to get a policy that the rate is locked and will not adjust on you as you age (many of them do). Besides the two policies I mentioned that I have, I also have a life insurance policy through the military.
The reason to get a life insurance policy is to protect your loved ones if something was to happen to you. It's not for you, it's for them. If you are young and single, a life insurance policy might not be the best thing to do. I personally got some help from a Chartered Financial Analyst (CFA) to set up these policies and also have a brokerage account with their firm. I felt more comfortable with a CFA when we sat down and ran the numbers. Sure, the money I put into each policy each month would make more in another investment, but this is a peace of mind issue for me. I sleep better at night knowing that if something was to happen to me, my family would be alright financially.
Some of you may not see it the same way as I do, but those are my reasons I chose to have these policies. I really hope this article helps you no matter which route you go.
If you need life insurance and not sure where to go, check out Ladder Life Insurance. Note: This is a referral link and I may receive compensation if you open a policy. Feel free to check out other options if Ladder Life Insurance is not for you.
Life insurance, if you've anyone relying on you or your income is very important. I don't view it as an investment (as many insurance agents promote term to be), just as a hedge against something bad happening. Like car insurance isn't an investkent, or is health insurance. To me they are the same. Though I do get the idea of making a return least some money back of your premiums, and using it as a tax free vehicle.