No matter who you are, morbid issues like death and dying are totally foreign concepts when you’re young and beginning to acquire a few assets. Insurance isn’t sexy; you can’t drive it, wear it or eat it; and the big payoff doesn’t come along until you’re gone. Add to that the endless confusion and complexities of the costs and types of policies, and life insurance becomes the most misunderstood area of financial planning.
A 1989 study by the Federal Trade Commission concluded that life insurance is so contradictory that the average consumer, not just the African American buyer, is unable to get an accurate understanding of what he or she is really,buying. Most people don’t even try to learn the basics.
But the primary purpose of life insurance is and has always been to take care of your dependents and any family members who rely upon you to have food, shelter and clothing. It goes well beyond paying for the funeral and the cemetery plot. If African Americans are going to build firm financial foundations for their families, a life insurance policy is the best way to prevent financial ruin for a succeeding generation. If you are responsible for the financial well-being of a spouse, children and other family members, then you need life insurance. On the other hand, if you do not have anyone who will starve to death if you die and leave them without a basic means of survival, then you need to consider buying only enough life insurance to bury you.
SELLING YOU INSURANCE
If you rely on the insurance agent to educate you correctly about what you should buy, you could be making a serious mistake. Insurance agents and financial planners who sell insurance are really salespeople, and they have a built-in conflict of interest. They are there to advise you, but they are also there to earn a commission. The higher the premiums for the life insurance that you purchase, the more money they make, which is why they prefer to sell whole-life insurance–the most expensive insurance you can buy.
Insurance agents will also try to convince you to purchase a policy because it is “a forced savings plan,” or a “tax deferred” savings for college tuition or an “additional source” of retirement income. These arguments sound good, but they are not. That’s because there are much more profitable ways to invest your dollars to meet these other financial goals.
Insurance is simply about buying protection for your assets and, more importantly, protection for your family. It is purchased to replace the income stream that you provide to support and care for your loved ones. The death benefit of a policy is to protect your family from economic hardship and deprivation when you are no longer there to provide for them. Nothing more, nothing less.
If you’re young, single and childless with no mortgage and no aging parents who depend upon you for support, then skip life insurance. Although a life insurance agent will argue that you should buy it