Term Life Insurance Articles
Why Some Financial Planners Are Confused About Term Life Insurance
2010-07-14
A financial planner can be a vital resource for any household. Financial planners can set a course to help their clients save money for retirement, make major purchases, and keep budgets in check. However, many planners are somewhat at a loss when it comes to term life insurance plans. Confused planners recommend against term life insurance, often without fully understanding the intricacies or purpose of such policies. Ultimately, every household should at least consider some type of life insurance, and it's important to understand exactly why confused planners get so confused.
First of all, financial planners will often point out that term life insurance is a bad investment. Some might even say that it isn't an investment, and they're absolutely correct: insurance isn't meant to be an investment in the first place. A term life insurance policy operates very simply. A policy holder pays premiums every month for coverage, and if he or she dies, there is a payout from the insurance company to the beneficiaries listed on the policy. If the policy holder doesn't die, premiums are simply lost, unless he or she has a very special type of term life insurance (such as convertible term life insurance). From a financial planner's perspective, this can mean that premiums are wasted money every month, and there's nothing that a financial planner dislikes more than wasted money.
As an overall financial plan, a term life insurance policy is admittedly shortsighted and flawed. However, most consumers don't use term life insurance policy as a form of complete protection for their families in the event of death. Term life insurance is better used as a way to protect other types of investments. For instance, if a person has an IRA that is slowly appreciating, he or she may get a term life insurance policy with a 30 year term to protect family members from sudden costs like funeral expenses in case that person dies before the IRA has time to build up to a reasonable level. The term life insurance policy doesn't work as an investment, it merely insures investments.
When a term life insurance policy is used correctly, it's a valuable resource for almost every household. There are many different types of term life insurance which are designed for different types of policy holders, and chances are that there's something for every buyer's needs. While confused financial planners may object to term life insurance at first, they tend to support the idea of term life insurance as part of an overall strategy. It's best as a sort of failsafe-not as a standalone "investment."
