Life insurance is the cornerstone of a family’s wealth building process.i Every family needs to have the right life insurance policy in place as it moves toward wealth building.
At the same time, life insurance in the United States is a Swiss Army knife that can perform a variety of “catch-all” functions, but the diversity of functions can be confusing and even questionable to the public.
It is the diversity of the functions of life insurance that has led to the existence of various claims in the market and caused confusion among policyholders. If we go through the right channels and learn about the professional knowledge and experience sharing, “Learn Before You Buy”, then we can simplify this decision making process so that we can purchase a reasonable plan that will achieve our goals for ourselves and our families.
1. Life insurance is divided into two categories: “term” and “whole life”.
Term life insurance is easy to understand and inexpensive. Consumers purchase a 10, 20, or 30 year term life insurance policy and pay a fixed amount of premiums on time in exchange for a specified length of coverage. We certainly don’t want to use that money, but by the time the policy expires, we will be old enough to renew the policy at a time when the premiums will be high. If you do have a limited budget, term life insurance is a good place to start. We would recommend that you choose a term life insurance product with a living benefit.
Whole life insurance, which provides the ability to protect for life, also has an additional deposit feature. This deposit feature, often referred to as the “cash value” of the policy, is used to support the policy after premiums stop being paid.
The earliest “cash value” insurance was savings and participating insurance, which had a feature similar to buying bonds or fixed deposits. Later, investment life insurance emerged as more like a mutual fund investment account, with no guarantee and a higher growth potential. The latest generation of universal life insurance is a class of whole life insurance that gives a cap on earnings, plus a guaranteed lock-in benefit, while offering price advantages and flexible premiums.
Whole life insurance has evolved to become more specialized and segmented. Whole life insurance is the only solution for high net worth individuals for estate planning, as well as business planning.
In some cases, a carefully planned and designed whole life policy can maximize the potential for cash value growth while receiving significant tax benefits. However, such a design solution must be planned and implemented by a professional and monitored over time, is only available to a select group of people, and still relies on numerous other external factors to work as intended.
2. Life insurance is more than just a monetary valuation of a person’s life.
Rather, it is more about helping with the unavoidable financial consequences of a major change. In reality, it can help our widows pay for the costs of dealing with the aftermath, pay off debts and loans, pay for their children’s education and living expenses. But most importantly, life insurance can greatly reduce the financial burden faced by surviving family members in the event of an unexpected death. Therefore, for families with a single source of income, life insurance is like a piece of mind.
3. Life insurance is a risk management tool, not an investment.
While some life insurance policies and design options do make the policy look like a good tax-advantaged “investment,” life insurance was not intended to be the best investment.
For the average American family, it is not advisable to consider a life insurance product with “investment” features until the family has an emergency reserve, all loans except the mortgage are paid off, and a 401(k) or Roth IRA is put in place.
4. If you are the breadwinner of your family, you do need life insurance.
If you are the sole or central source of income for your family, applying for life insurance for you is a no-brainer for your spouse, children or those who need care. You may also need life insurance if you are a key employee of a company or a business partner. If you are steadily retired and are fully financially independent, able to pay for everything you will face and have no one depending on you, then you may not need life insurance. However, you may want to consider life insurance as a financial tool for long-term planning.
5. Find a broker you can trust more than anything else
A knowledgeable and experienced broker can help sort through the different realities of each of our situations and make expert evaluations and comparisons among different insurance companies to give valuable product and program recommendations.
More choice is one of the benefits a trustworthy insurance broker can give back to policyholders.
At the same time, certified and insurer-approved insurance professionals can not only serve specific groups/areas (e.g., global high net worth clients), but can also negotiate directly with insurers on behalf of each policyholder and gain additional benefits during the underwriting process, resulting in a superior experience for the client.
Therefore, finding a trusted broker who specializes in the life insurance field is a core element of policy financial planning.
6. Life insurance is a contractual document
A life insurance policy, often referred to as a policy, is a contractual document between us and the insurance company. To put it crudely, the principle of insurance is to collect money from a hundred people in a pool, and when a person needs to make a claim, the money in this cash pool is used to pay out.
7. There are 4 important roles in life insurance
The four roles in a policy are: the underwriter, the policyholder, the insured, and the beneficiary.
The underwriter is the insurance company that pays out in the event of a claim; the policyholder is the person responsible for paying premiums to the insurance company; and the insured is the person covered by the entire policy. And the beneficiary can be a natural person, a trust, or another entity that is used to receive the claim payments.
For example, J, an editor at American Life Insurance Guide, applies for a policy with an insurance company. J is both the policyholder and the insured, and J’s husband is the beneficiary of the policy. If J dies, her husband will receive the claim.
Translated with www.DeepL.com/Translator (free version)