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Is the Motley Fool right about life insurance?

  • Oct-23-2015
  • Richard Reich

The Motley Fool has a recent article about how whole life insurance has had a resurgence among 30 year olds.The author takes the common viewpoint of the financial media that one should buy term life insurance. The author at least says: “It’s not that buying a whole life policy is such a terrible idea.”

The problem with this article and other similar ones is the generality. There is never an “always”.(except for that generality!) As the author says: “Most 30-somethings would be better suited to lock in rates with a 20-year level premium term policy. When you reach your 50s, consider reducing your coverage amount and perhaps using a shorter 10- or 15-year term. If you don’t think your insurance needs will fall in 20 years, you can get a 30-year level term policy right away. “

There is a problem with this logic. Having been in the insurance business for many years, I don’t know of a single beneficiary, (spouse/children) who is or would be thrilled that the term life insurance policy that their spouse or parent has been paying for 20 or 30 years is suddenly at zero at age 50 or 60.

I do know of people who buckled up, thought long and purchased whole life insurance in their 20’s, 30’s and 40’s who now have a wonderful legacy for their family and have opened up choices in financial planning that they wouldn’t have had if they hadn’t made that commitment.

This is not to say that term life insurance is not a great financial tool. It is, if one is limited in their income and savings choices. The first and most important move if you have loved ones who depend on your income is to have life insurance and to have a substantial amount that really replaces your income. Sometimes term life insurance is the only choice but if one is doing well financially and takes care of their retirement programs and other savings programs, then whole life insurance can be a superior choice and enhance the other asset pools.

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