Wednesday, April 4, 2018
The 1 Financial Product Everyone Should Have
There are no “one size fits all” items when it comes to personal finance. In our training as financial advisors, we are taught to understand the client’s situation, learn about their goals and dreams, and tailor a plan for them personally. This is fundamental to our job and it’s what separates us from the banks and robo-advisors. Despite this, I do believe there is one product everyone should have. This product is extremely valuable and tremendously dynamic. It can solve multiple problems, even ones where you think it doesn’t qualify. I am talking about Life Insurance and before you stop reading, I suggest you hear me out. I build Life Insurance into every financial plan I help create. The reason is simple, everyone needs it. There is not a question is if, but of how much. From the very rich, to the lower class, it is necessary. From the elderly to infants, it is vital. In today’s post, I will show you 10 reasons why everyone should have Life Insurance. Feel free to check how many apply to you.
1) It’s important
What does that mean? Well, why is it important? It is important because everything costs money, including death. When you die it will cost someone else money to bury you, or cremate you, or rent a boat to throw you in the ocean, or whatever you want to be done. One of my fundamental principles is that no one should have to pay for me once I am gone. That is non-negotiable in my books. I have been enough of a burden on others during my life that I will not be one when I am gone. Death costs money but so does the wrong people dying, like a parent or a spouse. The financial impact of a loved one dying can be catastrophic. Don’t believe me? Click Here! GoFundMe has a whole section on people who are financially impacted by the death of a loved one. It makes me incredibly sad. From bills to education, to the family home. It all can be gone just like that. Important or not?
2) It’s cheap
There is a common misconception that life insurance is expensive. I insured a friend of mine last week for $17 dollars a month. She was able to obtain $250,000 worth of coverage for less than a pizza. Well, not a Hot and Ready, but you get the point. Life insurance is like any other financial product, the more you put in, the more you get out. For young, healthy people it is extremely cheap. As you get older it gets more expensive, but not drastically. There are plans for everyone dependent on need. Like I said before, it is not if you need it, but how much you need.
3) It can save you money, no really it can
How can insurance save me money? Good question. The answer is simple: What would you do if your loved one died, and they were uninsured? Would you use investments to make up the difference? RRSP’s and Non-Registered investments have taxes paid upon withdrawal. Not using them is money saved. Would you use some of the equity in your home? Using that would cause you to have to repay that equity to eventually own your home. The longer it takes to own your home, the more interest you pay. Not using home equity is money saved. Would you just borrow the money? The same as home equity, you will owe interest on any money borrowed. What about using savings? Sure, you don’t pay tax on using your own savings, but you then deplete your savings which cannot be used on other things, like emergencies, investments, or opportunities. Someone dying is not an emergency. Emergencies aren’t final because they may or may not end. Death is final, and we all die. That is why you buy life insurance because we all know it is coming and yes, it is always cheaper to use life insurance than using any other source. You don’t want to have a fire sale and get pennies on the dollar for your possessions. Instead, spend pennies on the dollar and get the money from the insurance company.
This one is really a no-brainer, especially for young people. Parent’s raise us, help teach us, provide for us, and now they must pay off our debts when we die? That to me is just wrong. If you have anyone tied to you in any way for your debts, you need life insurance. It is about being responsible for yourself. Your death alone will cost a small fortune. The student loan, mortgage or line of credit that must be paid will be a backbreaker.
5) It is better than what the bank offers
There is nothing that is offered by a bank that is better than personal owned life insurance. Nothing. The reason is very, very simple. Any product the bank offers you pays off your debts in full should you die. This means that the bank owns the insurance, not you. You buy this insurance to satisfy the bank’s bottom line, not your families. When you own the insurance, you decide who gets the proceeds. It never declines, and the premiums stay the same. Bank owned insurance declines as the debts decline. Logically the cost should go down as well, but it certainly does not. Would you rather own your family’s well-being, or pay into the bank’s profit model? Told you it was simple.
6) It’s tax-free
All proceeds of life insurance are tax-free to the beneficiary. This factor is absolutely HUGE. Quite simply, there is no better way to give money to someone else than through a life insurance policy. Taxes eat away significantly at investments when you die. Add to that estate taxes and lawyer’s fees and you could have a much smaller amount being left to the ones who matter most to you. Taxes never end, even when you die. Securing life insurance, bypasses the estate and puts money directly into the hands of your loved ones. Sorry, Mr. Prime Minister, no money for you……
7) Your workplace insurance is almost never enough
Having group life insurance is a great thing. It is built into every group plan that an employer provides. Why it is never enough may come as a shock to you. You wouldn’t believe how many phone calls I get from 64-year old’s who now want life insurance coverage because their group plan ends at retirement. At 64 the cost is often very expensive and sometimes difficult because of health issues. Like bank-owned insurance, group life insurance is not owned by you, it’s owned by the group. If you leave the group for any reason including termination, retirement or just plain quitting, you now have no coverage. It may not matter to you now, but it will matter to you eventually. Workplace coverage is also a multiple of your salary, usually one or two times earnings. For most, this is not enough protection for their loved ones.
8) It makes business sense
Would the death of a business partner put you in business with their spouse who you hardly know? Having a buy/sell agreement is key to any successful business. Having it funded with life insurance is even more important. The buy/sell agreement is just some lines on a piece of paper if there isn’t the money to back it up. You don’t want to have to take a loan to buy out your former partners spouse should they die. More businesses fail in their first five years due to injury, illness or death than for any other reason. It is truly the foundation of any successful plan.
9) It’s easy
For some people, the application process is as easy as answering a few questions. For most, it is no more difficult than a checkup with your doctor. The nurse will gather vitals for the insurance company to make sure you are in decent health. That process takes only about 15 minutes. All in all, your human contact with the insurance company is about 30-45 minutes. That’s it. After that, you literally never have to do it again for the rest of your life if you don’t want to. You are fully insured and ready to go. I have had more intrusive moments waiting in a line at a Blue Jays game.
10) It’s about being an adult
This reason to me is the most important. None of us want to get old. None of us want the responsibility of the world heaped on us. None of us want to think about our own mortality. Despite what we want to happen, there is a stark reality of what will actually happen. You and I will eventually die. If it happens sooner rather than later, people will be dramatically affected. Their pain should only be emotional, not financial. Taking a small portion of your money every month to go towards satisfying that burden is what being an adult is all about. It’s one of the most selfless things you can do.
I think the mentality behind getting life insurance coverage is just as important as the coverage itself. You have taken a step to securing your and your families future. You have taken a step to recognize your own mortality and done something about it. You are forward thinking. That same mentality is needed to save for the future, stay out of debt, invest your money, raise productive children, care for loved ones, secure wealth and quite frankly, be a good human being. It all works together and that is why I believe everyone should have life insurance coverage. It requires dedication, patience, and sacrifice and those attributes will lead you to be very wealthy and much happier.
“Great achievement is usually born of great sacrifice, and is never the result of selfishness.” – Napoleon Hill
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