This year, I celebrate my 30th year in the insurance industry. Wow, how time flies. I have to tell you, for a while there, I didn't think I was going to make it. They say that only about 3 to 5% of the people that ever enter this industry are able to sustain it on a long-term basis because it is one of the most challenging businesses to be in. But thanks to some community support and some good luck, hopefully we've been able to provide some good value for you over the years. For that, we want to thank you. So when you do something for an extended period of time, you become sort of like that guy in the Farmer's commercial. You learn a thing or two because you've seen a thing or two. In my case, I've also done a thing or two.
So with that, today I'd like to share the 7 biggest mistakes I've seen people make when it comes to their life insurance. I think you're going to find this very useful. So let's get started.
We all know someone who has passed away unexpectedly either from an accident, illness, or a heart attack, and what it does to the family when there's no life insurance in place. I personally have had to raise money for a friend of mine with a GoFundMe campaign, and I have to tell you, GoFundMe is not life insurance. The amount that you can raise from it cannot come close to replacing the income of someone who has passed away, especially when they have a family. So the best thing that you can do is just buy a policy. It does not have to be very expensive, and the peace of mind that you can get from it is just priceless.
I know we all live in the internet and Amazon culture where we want something quickly and we believe that you can just Google something, find the lowest rate and go ahead and buy it. Unfortunately, in life insurance, it's not quite that simple. The reason for it is there's so many different criteria insurance companies have to give you those super low rates and it includes your height, weight, health conditions, family history, and a bunch of other things. That's where a good agent can also help you. Plus, it doesn't cost you any extra when you use an agent or a broker. See, life and health insurance industry is not like the travel industry where there are discounts for going direct to the company. The rates you're going to get between one broker and the other are going to be very similar. The difference is going to be the expertise and the variety of product each broker has to offer. So if it's not going to cost you any extra, why not get expert help?
Term life is definitely the most cheapest life insurance you can get. For most people, it is the right choice. But if your finances allow, consider doing a two policy approach, get one large term with rate guarantees of 20 or 30 years, but consider supplementing it with a good permanent policy. There are so many benefits of permanent life policies, including a way to grow your money on a tax-deferred basis, a way to transfer your wealth to your family on a tax-free basis, a way to pay for your long-term care needs, and also a way to create a tax free retirement plan. Oh, and speaking of tax-free retirement, check out our webinar on the never tax retirement strategy This is with my friend John Oldham, and I got to tell you, John is an excellent presenter and it is one of the most entertaining and eye opening presentations that I've seen in the longest time. I think you're really going to find it very useful.
So back to the term!
One of the downsides of term life insurance is that once the rate guarantees are over, the rates are going to skyrocket!
If you want to get a new policy with a new rate guarantee, you have to go through new medical underwriting. Depending upon your health condition at that time, the rates could be much, much higher. I know many of my clients that bought a policy in their thirties and forties, now they have a hard time getting an affordable one, mainly because the older we get, the chance of diabetes, high blood pressure, cholesterol, as well as many other ailments, become more likely. That is also one of the benefits of the permanent life policies, because once you bought it, there's no need to re-qualify unless you're trying to replace it.
That brings us to our mistake number four, not evaluating your personal lifestyle and family history. Hey, nobody knows you better than you. If you like your food, drink and don't like to exercise, you know it's going to eventually catch up with you. It can result in diabetes, high blood pressure, cholesterol, all kinds of things. Or if you have a family history of cancer or diabetes, just keep in mind sometimes that genetics are also hard to outrun. Finally, if you like to do some of those high-risk activities like I do, like riding motorcycles, why not cover your bases and get a good combination policy or term, permanent or for both?
This brings us to our mistake number five, not understanding the many uses of life insurance. Most people treat life insurance like death insurance. They believe that the only time someone will benefit is upon their passing. In some cases that is kind of true, but it depends on the type of policy that you have. There are so many benefits of life insurance that most people are not even aware of. We already talked about how you can use life insurance as a way to create a tax-free retirement plan, a way to pay for your long-term care needs, and a way to transfer your wealth on a tax-free basis from yourself to your family.
But did you also know that you can use life insurance with charitable giving? Yes, life insurance allows you to leverage your charitable gift quite significantly. If you have an estate tax problem, it allows you to pay for your state taxes on pennies on the dollar providing that it's structured properly. Finally, if you have a business, it's an excellent way to retain and reward key employees. So it pays to take the time to understand the many uses so that you can get the maximum benefits.
Well, that brings us to our mistake number six, improper use of your policy. There are so many people that have a permanent life policy like an index universal life, where they're only paying the minimum payments required in order to keep the policy in force. Well, that's a waste. It's like getting a Ferrari and never taking it out of second gear. You're already paying for the cost of insurance, so why not over fund it so that you can get more benefits out of it? There's so many benefits, right? Cash accumulation, being able to pay it off sooner, and being able to use it for your retirement planning needs. Now, keep in mind, not all policies are the same, so you might need help of your agent or broker to make sure that you're using it in the right sort of way. Also, it's a good idea to review your older policy from time to time as newer innovative policies are being introduced.
That brings us to our mistake number seven, not valuing your policy. Your life insurance is a very valuable asset. So don't take it for granted. Did you know that there are life settlement companies out there who are in the business of buying life insurance policies from people that can't afford them anymore? Yes, and in many cases, they will give you more money than what is built up inside your policy. So if you ever find yourself in a position where you can't afford your policy and you're just planning on letting it go, before you surrender it, consider selling it.
Now, it is something that we can also help you with too, but just keep in mind that this type of approach works better for older individuals with chronic health conditions with permanent life policies. It can work with term as well, too, but it depends on a lot of different circumstances. So I hope this has been valuable for you. This is the seven biggest mistakes I have seen people make with their life insurance over the last 30 years. If you would like to discuss your life insurance needs with me, schedule your discovery call today and let's talk.