Four Rules of Buying Life Insurance

2011-08-20T21:38:00.000+08:00

**Got this from the insurance planning module of the RFP program.

1. Do not buy unless there is a clear need. In the simplest analysis, insurance needs are figured by subtracting available resources from projected needs. Generally, clients who are supporting young families need more insurance than those who are not; their insurance needs increase as the children approach college age, especially for people with considerable debt. As the children graduates, and retirement assets increase, the need for life insurance tends to decrease or disappear. The goal, at this stage in life, is to have built up a substantial net worth through other investments. Financial planning should discipline clients to accumulate these reserves, so the forced discipline of insurance policies become less important.

2. Carry just enough life insurance. Since there are more cost effective ways to invest, there is no reason to carry more insurance than needed. A financial planner can perform a capital needs analysis to determine the appropriate amount of coverage. If the client is interested in using insurance as an investment, compare the projected returns with those of alternative investments.

3. Pay the minimum for the most suitable coverage. Although there is no point in overpaying for an uncertain future benefit, analyzing the true cost of insurance is complicated. Get quotes and coverage from insurance companies that are rated highly by consumer organizations.

4. Analyze the client's insurance objectives. Saving features are good selling points for cash value policies, but the most important reason for buying life insurance is to protect against the risk of loss. Budget restraints must be balanced with the client's needs and wants. Sometimes the client is not ready for the planner's recommendations; the planner's task is then to help the client recognize the risk of loss.

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Four Rules of Buying Life Insurance