Are you looking to buy a life assurance policy? Well, be careful. Life assurance can be difficult to understand and it's easy to be conned into buying something under false pretenses.
Recently a prominent life assurance company together with several of its agents paid a huge fine because it permitted the sale of a life assurance policy disguised as a retirement plan. There was little attention given to what a life assurance policy is truly designed to provide.
Life assurance is not an investment for your benefit. It's guaranteed income tax-free cash paid to someone you designate in the event of your death. If you deeply care for someone and want to protect them, then buying a life assurance policy makes sense.
As primary bread winner in your family, your lost income could jeopardize the ability of those you love to continue to enjoy their standard of living.
The only way to guarantee an immediate replacement of this money is with the intelligent purchase of a life assurance policy.
Notice I didn't say term life assurance, low cost life assurance, or whole life assurance.
To your loved ones ... this doesn't really matter.
Over the years I've delivered millions of dollars of life assurance benefit to the families of deceased bread winners. And you know what?
No one ever asked me what type of life assurance policy it was. They were just extremely grateful to get the money.
Term is the cheapest, but it's unlikely the death benefit will be paid since the life assurance policy will probably lapse before you actually die. Right now the premium may seem cheap compared with other types. But what happens when you're older?
Term life assurance premiums can be level for a specific number of years, but when that number of years is up the price will skyrocket to a point you won't be able or willing to pay.
Whole life assurance provides a lifetime level premium until the policy is literally paid-up. This could be 10, 20 years ... or when you reach age 65, 85 or 100. One big advantage is you don't have to worry about your policy expiring before you do.
One type of life assurance policy is not necessarily better than another. But it's critical you understand what you are buying, how it works and your net cost.
After all, if the policy isn't in force when you die you have thrown your premium dollars right down a rat hole.
By the way, don't fall for that line about buy term and invest the difference. Anyone who cons you with this bunch of malarkey has absolutely no idea how to intelligently evaluate the purchase of life assurance.
An excellent life assurance policy to consider is universal life. This is the type of policy that guarantees the death benefit up to age 115 regardless of the performance of the underlying investment.
Although more expensive then term life assurance, universal life is far less costly than a typical whole life assurance policy. But be careful because some universal life policies are sold by focusing on projected interest rates rather than contractual guarantees.
If you are considering the purchase of a whole life assurance policy from a mutual company that declares annual dividends, ask the agent for a hypothetical illustration using a dividend forecast at least one percent less the current rate.
In the past when long-term interest rates were higher, mutual companies credited very handsome dividends to their policies. But today with long-term rates still depressed, it's unlikely a life assurance policy will perform as illustrated.
In summary, pay close attention to the guarantees of whatever life assurance policy you decide to buy. Also, make sure you know the credit rating of the life assurance company.
There is nothing wrong with term life assurance, but understand your options about converting to a permanent plan. This could be critical if you become uninsurable before the policy expires.
Remember, you may never get a second chance to make the right decision.
About the author:
Veteran financial consultant Don Adams provides easy to understand advice on a wide variety of money matters. You're just a click away from getting tons of free personal finance tips.