American Express called Nella this week. They’re selling a life insurance policy. So here are a dozen Life Insurance Rules of Thumb.
1. For the Term of his natural life? Jargon Busters
Term Life Insurance is a straight-up insurance policy. You die (or some other defined incident) and the insurer pays money. Whole of Life Insurance has a savings component and surrender value. Commissions, fees and charges are higher on Whole of Life, plus it takes about 20 years for Whole of Life to offer a decent return.
What to do?
a) [i]Buy term – invest the rest[/i]. Note that second phrase.
b) Build your asset base to provide sufficient income, until insurance is [b]no longer required[/b].
[b]2. Never buy insurance from telemarketers[/b], or [i]On sweatshops and boiler rooms[/i].
How much money would it take to make you ring people at home in the evenings to sell stuff? They can’t pay me enough.
Nella used to sell trade magazine advertising over the phone. Nella gave great phone for great commissions. Telemarketing is an expensive business and premiums pay for it.
[b]3. Cheap and “easy”, “no medical” insurance isn’t[/b], or [i]What free lunch?[/i]
Online, I compared three Term policies from two insurers monthly premiums.
Amount Co. A Co. B
$100,000 $15.07 $12.30
$200,000 $22.65 $24.60
$300,000 $27.28 $35.98
Most brokers can get an average person $500,000 coverage for the $300.000 premium.
[b]4. Don’t smoke[/b], or [i]Can you say Yule Brunner and Steve McQueen?[/i]
You know it kills you? Well your insurance company knows it. Smoking will add about 75% to your premium. I know it’s “Yul Brynner” but you’d be surprised how many people search Google with the misspelling.
[b]5. TPD?[/b] [i]Better than ADD[/i].
Total and Permanent Disability cover is expensive and full of “exclusions”. That’s insurance speak for reasons not to pay you. However it is nice to get paid as soon as something bad is diagnosed. So I have Term Life and a much smaller $100,000 TPD cover. Should a bad thing happen I get money for treatment and to put my affairs in order. Term cover will then pay out when the end comes.
[b]6. Only insure income producing assets[/b], or [i]Do you want fries with that?[/i]
Brokers love to upsell. Your home-maker spouse allows you to work and you’d miss them on cold nights. Don’t insure them unless they make mortgage payments. Invest the premium instead.
[b]7. Review your insurance at least every two years[/b], or [i]know when to fold ’em[/i].
Once your assets are feeding you, do you really need half a million in Term Life? Thinkaboudit!
[b]8. Income Protection Insurance[/b], or [i]You don’t need it, till you need it.[/i]
Can you afford 6 months unable to work? Would your investments eat you? Watch out for medical history excluding you on this.
[b]9. Get Term Life before 34 but not too soon[/b], or [i]How old am I again?[/i]
Most people can qualify for Term Life before 34. Does a 23 year-old without obligations need it? No.
[b]10. Start investing[/b], or [i]That means today, slacker![/i]
Do something about it today. Insurance companies only write business for the cashflow to invest. There’s a lesson in that.
[b]11. The most powerful force in the universe?[/b], or [i]Up, up and away[/i]
Compound interest. There’s an article in just this. You do know that at 10% p.a. you double your money every 7.2 years?
[b]12. Add you’re own[/b] or [i]Whose life is this anyway?[/i]
I can’t tell you everything or you won’t learn. Get a piece of paper out and write a plan. Now. I’ll wait…
Then add a reply down there with the suggestion…