Life Insurance

I thought I would begin where most people begin with investments - life insurance. First of all, life insurance is a very poor investment, with returns usually lower than the inflation rate. Second, it is designed for one thing - to make the insurance company money, a awful lot of money. Don't get me wrong, it has it's place. Speaking of which, the true purpose of life insurance is to replace the insured person's income if he/she were to die prematurely. If no one is dependent on your income, why do you need it?

There are all kinds of reasons insurance agents use to get people to buy life insurance. "It's forced savings"- true, but there are so many better ways to save money and get a higher return. "You care for your family if the unfortunate happens" - this is probably the most effective and the best reason for insurance, again if your family depends on your income. In this case, get the best coverage for the best price; term insurance, for at least the length of time until your kids are grown and out of the house. Whole life insurance, universal life, variable universal life, etc. all have a "savings" or "investment" element to them and are much more expensive. Again, the returns are generally lower. You get better investments outside of insurance, and better coverage with term if you don't combine the two. Also, with respect to term insurance, make sure it is not "accident only coverage". You may be involved in an accident and die two days later, the insurance company will likely deny the claim because you died in a hospital as result of injury complications, not from the accident.

Never get more coverage on a child or baby other than for funeral expenses. Again, you are not dependent on your child's income, which is usually none. College expenses can be saved for in better investment vehicles than insurance. Agents typically take advantage of people's inexperience in these matters and fear of the uncertain. If you take a little time to plan for the future, retirement, emergency funds, etc.; the uncertain is not so scary because you are prepared. You can begin by taking a small percentage of your budget for these things and have it build. Having a budget is another topic for another day.

Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. I Timothy 6:17

More investment vehicles reviewed in coming days. Stay tuned ...