Don’t make these 4 Life Insurance mistakes!

01 May 2015

Buying life insurance is a big decision, and one that should not be held lightly. I often ask clients the question, “If life insurance was FREE, how much would you own?” The answer I often get is, “Well, as much as I could!”  This tells me that people believe in life insurance, but don’t want to PAY for it! Like all insurance, it is best to approach the matter in a way that can best fit the unique situation and look at all the options. Here are my four mistakes to avoid:

1) Automatically buying term insurance.

With life expectancies longer than ever, the cost of term insurance has never been cheaper.  However, some people may need insurance coverage for longer than the 20-30 year term. Estate tax planning for the wealthier in our society would often mean insurance that needs to be on the books forever. Term insurance won’t normally work in those scenarios. Often two policies can accomplish this. Your financial professional can be a great guide in this discussion.

2) Buying purely off an illustration.

If you decide on permanent insurance, often an agent will use a hypothetical illustration. Unfortunately, they are often presented as fact. This could not be further than the truth. The interest rate that is used tends to differ greatly from what is actually earned. For example, I recall seeing an old presentation from an agent in the 1980s and double digit interest rate assumptions were used! With rates in the lower single digits today, imagine what would have happened to that policy 25 years later. Not good.

3) Buying off of price alone.

Although price is important, the quality/ratings of the carrier, in my opinion, is equally if not more important. There are many rating agencies like AM Best and Standard and Poors to help in assessing the quality of the company. Don’t just buy on lowest cost alone.

4) Dropping your policy prior to putting your new one in force.

NEVER drop a policy until you have your new one in force and delivered by your agent.

Speaking with a qualified financial professional can help as you decide on which options are best for you

Good luck! Jeff

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and Premier Investments of Iowa are not affiliated.

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Jeffrey Johnston

Jeffrey is originally from Solon, Iowa. He currently resides in Swisher, Iowa with his wife, Prudence, and his three children, Seth, Ian, and Roman. He graduated from the University of Northern Iowa in 1989, where he majored in Finance and Investments. He has 24 years of experience in the investment and estate planning business. He is currently the President of “Premier Investments of Iowa, Inc.” Jeffrey’s main focus is Estate and Investment Planning for Senior Citizens and Pre Retirees. Jeffrey became a Chartered Financial Consultant (ChFC) in 2001. He is the author of many articles on industry related topics and he is a frequent seminar presenter. He is a Board Member TRIAD Linn County Seniors Against Crime, and he is also a past Board Member of the Heritage Area Agency on Aging Task Force. He is a member of CEO Roundtable in Cedar Rapids, a Daybreak Rotary Member, and a member of the Cedar Rapids Estate Planning Council. In March of 2009, Jeffrey became the host of the Premier Investments of Iowa Financial Hour which airs every Tuesday Evening from 6PM -7PM, on WMT 600 AM Radio. In his free time he enjoys golf, fishing, scuba diving, traveling, and coaching son’s basketball teams.