The two reasons you need life insurance

I had a prospect several years back who was in his early 40s, healthy and paying close to $2M a year in life insurance premiums. 

Married, three kids, successful business, but no significant estate tax issue.

 His “financial advisor” was a friend from high school and worked at an insurance company to remain unnamed. In addition to the life insurance, he had an annuity, a disability policy, and a long-term care policy in place. Outside of some reserve cash, he had nothing invested in the way of retirement or brokerage assets. 

After a couple of data-gathering meetings, we laid out observations and recommendations—including ways to keep the same coverage (though unnecessary) for a fraction of the premium cost.

Despite remaining professional, at one point he looked at us and said: “You guys can be honest with me, he’s screwing me bad, right?” We thought he “got it.”

I wish the story had a happy ending. He took our recommendations back to his friend who implemented them himself. And the prospect stayed put.

There are two main purposes for life insurance:

 1. Protect against a premature death and/or 

 income replacement

 2. Estate liquidity and/or to pay estate taxes

Number 1 can almost always be properly achieved by utilizing term insurance. Term insurance is the cheapest form of life insurance and can be extremely economical, especially if you are young and healthy. 

Number 2 typically requires permanent insurance. 

Many term policies can convert to permanent insurance without evidence of insurability if one’s need changes from income replacement to estate liquidity. 

Over time, my disgust with the insurance guy has subsided and I am left with one clear takeaway from the experience. That “financial advisor” is one hell of a salesman.

I don’t sell insurance, but I do help quarterback the process so clients end up properly protected and not oversold.

Preserve Private Wealth is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specic securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.