What Do I Need To Know About Life Insurance

There is a secret about insurance that many people do not know, that is that insurance is among the most profitable industries in the world. If you don't believe me, then take a quick look at Warren Buffets main holdings.

When we discuss insurance in general, we become confused about why or when we should have insurance, and under what circumstance.

When it comes to money and financial planning, insurance seems to be one of the most challenging things to understand. People will typicall! y over pay for insurance and are easily convinced by the door knocking insurance salesman. This is an important point, when they have to come to you such as phone calls or solicitation letters, these products are typically over-priced. There is one time to buy insurance and one time only, that is when a loss would cause you financial hardship.

Let me explain, if your spouse dies how would you be able to cope? Would you be able to cope at all? Let us say that your spouse earns $2000 per month. You would need to make up that much income in your insurance policy. So if your policy is for 2 million dollars then your policy if invested at 10% per year would yield $16000 per month, you are over insured and you are paying too much for it! In this case your insurance policy should probably be for no more than $250000 that would yield about $2000 a month.

Another common misunderstanding is centred around whole-life versus term insurance. There is a simple easy ! to remember rule that I can share with you about that: buy ter! m, inves t the difference. We already discussed how you should buy insurance only to guard against financial ruin. With that in mind, please look at my blog for a more thorough discussion of term versus whole life insurance.

Please understand that everyone has different needs that could not possibly be covered in an article like this but here are some examples of insurance that you don't need:

Mortgage insurance: You should be able to maintain your mortgage payments with your insurance proceeds.

Child insurance: This is surprisingly popular. If your child under 6 dies, would that create financial hardship? Emotional distress...yes but you can't insure against that.

Funeral insurance: As you will see in my blog, there are other, more profitable ways to protect against funeral expenses.

Vacation insurance: Far too many loopholes, you will be paying for something that you will never be able to collect.

Credit Card insuran! ce: My favorite thing to hate. My reasons are far too numerous to discuss here. Just don't do it. The main thing is that if you lose your job "through no fault of your own" the insurance will only pay the minimum payment. The credit card companies will make a fortune on the interest alone. You would be paying them for the privilege of remaining in debt.

By Robert Deveau