Wednesday, March 13, 2013

Life Insurance - Perceptions vs. Reality


Life insurance is often misunderstood by many retirees. In my many years as a financial planner, I have learned that most people (myself included) have some type of bias they bring to any situation, including their finances. It’s very challenging to step back, remove the emotion of these misconceptions and objectively evaluate a situation, especially when it comes to life insurance.

Recently, I had a client who was dissatisfied with their life insurance agent. Because of their bad experience with that individual, they had developed a negative bias towards life insurance in general. After much discussion, the client explained that one of their major concerns was that if either spouse passed away, the surviving spouse would only receive one of their two current Social Security checks. Their previous life insurance agent had attempted to take advantage of this concern for the surviving spouse by “selling a product” and it had left a bad taste in their mouths.


I understood their concern and described a Social Security income replacement plan to address the issue. I explained that they would have to place funds into this plan and if either spouse died, the surviving spouse would have a pension that would provide income replacement for the Social Security check. Also, if they both chose to terminate it in the future, there would be some form of cash back to the family. If they both died, there would be a Social Security continuation plan to their beneficiaries.

I further explained that this solution had three conditions:

1) Good health to qualify for the program.
2) Budgeting and financial planning to pay for the program.
3) Foresight to sign-up for the program before the death of either spouse.

After we looked more closely at this program, the clients became curious to know the name and where they could "buy this program." I explained that it was actually a specialized type of life insurance that they could purchase through a life insurance agent or agency.  Understandably, they were shocked.

After a good laugh, the clients admitted that they did in fact have a bias against anything with the word insurance in it. I joked that the butcher does not sell a lot of “cow butt” but he does sell a lot of “rump roast." The clients agreed to find and purchase the right life insurance policy for them. 

In 1977, the name of the Patagonian Toothfish1 was officially changed to Chilean Sea Bass by a fish wholesaler named Lee Lantz.  Mr. Lantz was looking for a name that would make the fish more attractive to the American market. What does this mean? It means a lot of folks enjoy Chilean Sea Bass, but wouldn’t order the Patagonian Toothfish, even though it's one in the same.

The same can be said about life insurance.  Misconceptions about life insurance are very common, but when it comes to supporting your surviving spouse or family members, it is a very useful tool. If you've lost your partner, here are a few tips for you as the surviving spouse2. Dealing with loss is difficult enough, don't let misconceptions about life insurance keep you from creating a plan to help you take care of your loved ones. 

For more information on how we can help you plan for retirement, contact us today.

"Patagonia Toothfish" Wikipedia; http://en.wikipedia.org/wiki/Patagonian_toothfish

"Tips for the Surviving Spouse" New York Life Insurance Company; http://www.newyorklife.com/learn-and-plan/tips-for-the-surviving-spouse

Image Credit: rhurtubia


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