3 Lessons from Personal Finance Resources About Life Insurance
Life insurance is a crucial component of financial planning that many people overlook. This article delves into key lessons about life insurance, drawing from expert insights and trusted personal finance resources. From leveraging cash value during market downturns to understanding how life insurance protects beyond income replacement, readers will gain valuable knowledge to make informed decisions about their financial future.
- Leverage Cash Value During Market Downturns
- Life Insurance Protects Beyond Income Replacement
- Term Life Insurance Suits Young Families Best
Leverage Cash Value During Market Downturns
As a life insurance agent with almost two decades in the industry, I am always trying to stay current and continue to learn about various benefits and uses of life insurance.
The book/source I learned a lot from is David McKnight and "The Power of Zero." He has a podcast and various publications on the topic of permanent life insurance policies, going over the benefits and the "shortcomings." A point he made, which I can really stand behind and advise my clients, is to use their permanent life insurance policies' cash values in years following market downturns. This gives time and allows your traditional retirement accounts to "recover" and not deplete your retirement portfolio due to market risk. Most life insurance plans have a floor of zero in negative market performance. In other words, they will not see a 20-30% decline in value over a year if the market does poorly. This makes them a perfect source of funds for retirement in years following negative market performance.
I advise my clients to consider retirement as a variety of sources of income that work together to minimize market, tax, and longevity risk.
Life Insurance Protects Beyond Income Replacement
One thing that really stuck with me from a personal finance podcast was the idea that life insurance isn't just about replacing income after you're gone—it's also a tool for managing debt and covering unexpected expenses. I hadn't thought much about how policies could protect your family from things like funeral costs or outstanding loans, which can add up quickly and cause financial strain. This perspective shifted how I approached buying life insurance—I looked beyond just the income replacement figure and considered the broader financial safety net it provides. It made me realize that a well-structured policy can offer peace of mind, knowing that my family won't be burdened by debts or sudden expenses. This understanding helped me choose coverage that felt more comprehensive and tailored to real-world needs, rather than just ticking a box.
Term Life Insurance Suits Young Families Best
I learned that term life insurance makes the most sense for the needs of young families, and whole life insurance isn't a good investment.
The thought of term coverage ending the day the term ends might feel like a bad investment. It may seem that paying more now to have a policy without a term would be the better option.
The podcast explained how drastic the cost difference is between the two options and how other investment opportunities are better ways to build your wealth.
It all made sense.
