Monday, November 14, 2011

Life Insurance Is Not A Religion (and neither is yoga)

I have been a financial planner for over 20 years and a yoga teacher for 8. I have heard the statement “I don’t believe in life insurance” many times in my career and it always baffles me. Life insurance is not a religion; life insurance is a tool. Life insurance is an asset that provides an instant estate, upon death, if you have not had the time to accumulate an estate (translated estate = money in the bank which can become investments that can create an income stream if the breadwinner dies prematurely).

It is not a matter of “believing;" it is a matter of looking at your financial situation and determining if you could continue to live the way you live today if your spouse or partner is no longer here, or if you are a single parent with a child who depends on you, that your child could be adequately cared for.

If you or your spouse feels this way about insurance then you may not understand it. Let me tell you two stories. Many years ago, I met with a couple in which the husband was a television executive making a high six figure income. They had a nice house with a big mortgage and very little savings. His wife did not work outside the home and they had no children. When I recommended that they purchase life insurance to pay off the house and provide an income for his wife he told me, “I don’t believe in life insurance,” and referring to his wife “Sally” he stated that, “she could just move back in with her parents if something happened to me, they will take care of her”. Sally was in her late forties and just sat there not saying a word. I asked her if that was a solution she was comfortable with. She said no, but he wouldn’t budge. I often wonder what happened to that couple. I think it is very selfish and short sighted to not care enough for your spouse to make sure he or she is taken care of should a premature death occur. I encourage couples to talk this through and make an informed decision on how to insure for a loss like this. Too many people don’t think about planning for an unexpected death until it is too late.

I will share another story. One of my clients referred her sister and brother-in-law to me for some financial planning. Let’s call them John and Jane. John had retired early and he and Jane had not saved as much as they hoped to save for retirement, but with his pension they determined they could live comfortably. John had chosen the highest payout, a lifetime annuity with no survivor benefit (this decision was made prior to meeting me) because this provided a larger monthly benefit. Jane signed off on this option, but she did not understand that if he died, she would no longer receive any pension benefits at all, ZERO. She was upset, but relieved that there was a solution. I recommended a life insurance policy to replace the pension should John die prematurely. John applied for a policy, was approved, and when I went to deliver the life insurance policy he had changed his mind and no longer wanted to spend the money. It was “too expensive”. I tried to talk to him about the ramifications of this decision, and I encouraged him to come back in along with his wife Jane to discuss what I felt was a poor decision. He refused and said it was a joint decision between him and Jane. About a month later, John was killed in a motorcycle accident. Jane and her sister contacted me to see if there was anything she could do since the insurance had been approved so recently. They had done some research and knew about the free look period an insurance policy provides, but since Jane and her husband had refused the policy, nothing could be done. I felt horrible, but I could not take responsibility for the decision they made. I ended up losing the sister as a client too.

Lesson here: Don’t let anyone else make decisions about your financial future without a full discussion of all the pros and cons as well as looking at the worst case scenarios. These “beliefs” may be completely misguided and could have a negative impact on your life. One thing I have learned from my yoga practice is that we are responsible for our own well being. Sometimes you have to take charge and insist that these things be discussed so you and your family are cared for. Take the time and make the effort to insure that you can live your life the way you want to, no matter what happens.

Don’t stick your head in the sand and hope for the best. Take care of yourself today, as tomorrow is promised to no one.

The case studies are based on actual client situations but are meant for informational purposes only. The case studies are in no way intended to be used as a primary basis for insurance or investment decisions. Similar results are not guaranteed and will vary based the individual client situations. Clients should consult with their own financial, tax, legal, and accounting advisors before implementing any insurance or investment plan. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security or investment product.

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