Term Life Insurance Articles
When Financial Planners Recommend Against Term Life Insurance
2010-07-11
In general, a financial planner can be an extremely valuable asset, especially if your finances are somewhat limited. Financial planners help a person to develop a long term strategy, including investment strategies, budgeting, and more. They will also have something to say about your insurance strategies. In some cases, financial planners adamantly recommend against term life insurance coverage, and this can seem perplexing to some people; after all, isn't a term life insurance policy a valid investment? Understanding the reasons behind a financial planner's decision to recommend against a term life insurance policy can help you when developing an overall financial strategy.
First of all, to dispel a popular misconception, a term life insurance policy is not very valuable as a traditional "investment." Ideally, an investment should offer a guaranteed return on money paid into it. A term life insurance policy is not guaranteed at all; in fact, most policy holders buy them expecting that benefits will never be paid out. They're simply a way to protect your loved ones' finances in the event of a sudden death. Premiums paid into a term life insurance policy are lost, except in return of premium policies and in special convertible term life insurance policies. Even if you elect to purchase one of these special policies, the money that you'll receive at the end of the term will be quite insignificant compared to other investments, for instance an IRA.
This is not to say that term life insurance policies aren't valuable. They can be an essential part of long term strategy in many situations. This is especially true for family breadwinners who have long-term investment strategies, but nothing to cover their loved ones' living expenses after their deaths. For these consumers, a term life insurance policy can be incredibly important. However, from a financial planner's view, a person who has both a long term investment strategy and short-term funds that a family can use after his or her death would not really need a standard term life insurance policy.
Financial planners will usually recommend against a new life insurance policy in these sorts of circumstances. However, financial planners can make mistakes, and sometimes the peace of mind that comes with a new life insurance policy can be worth the relatively small premiums. Before discussing a policy with your financial planner, gather a few quotes and carefully measure the costs versus the potential rewards of a term life insurance plan. Listen to your planner's advice, but remember: the decision of whether or not to buy a policy is ultimately up to the family.
