Last week I featured the first half of common life insurance myths. Here are the next three:
- "Buy term and invest the difference." Mitch Kenvin, an advisor in Dallas with Personal Economics Group and an agent with American United Life has been encountering this myth for 20 years. It's an interesting notion, he says, but it just doesn't work in reality. "People, especially with term insurance, run low on money, lose a job, and it's always the first bill to go. They're going to pay the mortgage before they pay their life insurance premium. The theory of buying term and investing the difference is fine except that it never comes to fruition."
- "Seniors don't need life insurance." This myth pops up frequently in the financial media: Once you're close to or in retirement, you can drop your life insurance. That's often a bad idea, says Donald Lippencott, MSFS of the Lippencott Financial Group in Port Jefferson Station in Long Island. "I have sat with clients for the last 27 years, and the ones that were 45-years-old 27 years ago, who are now knocking on the door of 70, are wishing that they had more and better types of coverage," Lippencott says.
- "Every senior needs life insurance." This is the flip side of number two. Both involve generalizations that often don't fit a particular situation. The advisors who buy into this myth start with the life insurance product, and then work back to the client's needs, says Dan Forbes, CFP in Providence, R.I. Forbes says a more suitable approach is to identify the need, and then determine the most appropriate method or product to meet that need. That approach can lead to the fact that some older clients don't need life insurance, he says: "If you're not protecting a pension or if you're not interested in leaving a sum of money to your beneficiaries or heirs, or if you haven't recently taken out a long-term mortgage at retirement, it can be hard to justify having a life insurance policy."
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