Depending on who you talk to, financial planning can mean a great deal of things. From how to save until you can retire, to what stocks and mutual funds you should choose from your favorite financial planner.
One area of financial planning that many do not thing about before they hire a consultant—risk management. Sure, we’ve bought our car, and we have to have car insurance, or we bought our home and we now have to purchase home owner’s insurance. These are excellent reasons to buy insurance, and we consider that the cost of doing business.
Every month we pay a premium just in case there’s a fire. After twenty years of paying home owner’s insurance—I haven’t had one fire, not even a grease fire on my stove. After 30 years of driving a car, I’ve never had an accident or had my car stolen … hmmm. Again, many premiums paid to insurance companies with no dividends or interest earned.
But what I got, and what my lenders get—is peace of mind. That is why we pay for it. Knowing that just because my premium is paid on time—just in case there is a fire, or a car accident—I will not be at a financial loss. That, is risk management.
But—allow me to switch to risk management on my life. Right. My life! We all know that no one lives forever. One day we will die. Sorry, yet true. For most of us—that’s something we don’t think we have to worry about for another 20, 30 or 40 years from now. For others, we are staring at the reality just right around the corner.
I once worked at a trauma medical center. I witnessed countless people from all walks of life, all social economic backgrounds came into the ER. They came in with blunt injuries, car accidents, or because of stupid prank accidents. Many of them died on the table at 25 or 37, or 50 years of age. Sorry about the blunt description—but the reality is that we will die. Hopefully later, rather than sooner.
Now if you are the major source of income in your home—and if you don’t make it home tonight, guess what? Your family will suffer a serious loss if you are not insured. They’ll lose you, and that’s horrific. But—they will also lose a source of income, and that can impact your spouse and children for the rest of their lives.
That’s a risk that you most likely don’t want to take. Just like car and home insurance—you insure against the risk of financial loss. The truth is—the risk on the loss of your life is far more significant.
I don’t sell life insurance, but I do know the value of it. Now here’s the good news—unlike liability insurance, you can earn dividends and interest on the premiums you pay into your policy. Cash value life insurance is one way you can insure against the risk of financial loss to your family–and accumulate funds you can use later.
There are a number of life insurance policies that pay on the accumulated value of your policy. The amount you accumulate will vary by the policy value, your age, the premium amount, and the type of policy you invest in.
Remember—this is not a term life insurance policy, which is inexpensive, but has no accumulated cash value .
Cash Value Policies
Examples of cash value life insurance policies include Whole Life, Universal Life Insurance, Indexed Universal Life, Variable life insurance, or Variable universal life insurance
Each one accumulates value differently and they have different features. While Whole Life is the most traditional and the most conservative—Variable life is less conservative and may pay higher dividends.
It’s a tough conversation to have, but it’s a necessary one. To make sure you choose the best policy for your family, see a financial planner, make an appointment with an insurance agent. They will guide you to the policy that suits you the most, and provide you with a coverage amount for your family.
One way to get coverage, is through your employer. Many large companies offer life insurance. They are typically term policies, but are very inexpensive.
The authors of Allotwiser, and Allotwiser.com © 2019, do not sell, endorse any financial institution, financial products, or consulting services. Allotwiser.com does not make any claims, nor make any offers. This platform is strictly for educational purposes. For financial or legal advice, please consult your attorney, CPA, financial planner, or other certified and licensed professional consultant.