Like most people, you haven’t purchased life insurance in years. You might even be one of those people who has never purchased it.
We talked to a financial advisor, who had some interesting insights into why the advisors in their office pushed life insurance so much. They also explained how and for whom to buy life insurance.
The Basics of Life Insurance
Life insurance can be divided into two categories: term and permanent. The term is when the insurance period ends, and you are out the money you have paid into the policy with no more coverage available to purchase.
Permanent is when your coverage goes on forever. Simply put, all life insurance policies have expiration dates. When they expire, they are no longer valid.
Why Life Insurance?
Life insurance is only useful if it provides you with the cash or cash equivalent that you need when you need it. If the policy includes a death benefit, then it is truly a life insurance policy and if certain conditions are met, you can collect this amount and not incur any taxes with the death benefit.
For example, let's say that you pay $100 per month into a permanent term policy for 10 years with a face value of $1 million. After those 10 years, your life insurance policy will expire, and no more coverage is available.
The cash value of this type of life insurance would be the $1 million paid into the policy plus any interest earned on that money during those 10 years. If the policy was not paid up, then this means that the $1 million would be payable to your beneficiaries.
If you want to avoid being on the hook for any taxes on that amount, then you would need to purchase a permanent policy. Permanent life insurance coverage is also called permanent health insurance because it pays you if you become ill and are unable to work.
Why Do Financial Advisors Sell Life Insurance?
Financial advisors are in the business of advising people on investments that have a positive return on investment (ROI).
The investment community is very competitive, so advisors need to sell as many products as possible. Life insurance is one of the few investments that provide a guaranteed return on investment.
The ROI on life insurance can be determined by these factors.
1. The first factor is the cost of the policy. The more that a policy costs, the less cash that you will receive at death, and the lower your chance of receiving additional payments afterwards.
2. The second factor is how much cash you need when you die or become ill. This measure will be based on your age, gender and the premium rates in your area.
One last reason that financial advisors sell life insurance is that they don't understand how it works and why people are buying it.
Most people do not want to be told that they are paying for insurance when it is already paid for. They are also afraid of how much the insurance will cost and what types of questions they might need to answer.
There is only one answer to selling insurance: sell as much as you can. Life is a complicated decision, and there is no easy solution to choosing and purchasing the right policy.
However, you don't have to go through all the hassles alone. A trained professional will help ensure that you buy the right life insurance policy without making any mistakes.
How Much Does A Financial Advisor Cost?
In general, people who work on commission are more likely to sell you a product than someone who is paid a flat fee. If possible, try to find an advisor who will take only a flat fee so that they do not have any conflicts of interest when deciding what is best for you.
Another way to find an advisor is through your workplace retirement plan. Large companies hire financial advisors to provide educational seminars and one on one meetings for people participating in their retirement plans.
Although you can indeed get financial advice from friends and family, you should be wary of taking their advice. Many times these types of advisors do not have the training required to ensure your best interests.
How Do You Find A Financial Advisor?
Although finding a financial advisor is not too difficult, you need to make sure that you are comfortable with them before giving them control over your finances.
An important aspect is ensuring that your advisor has a good reputation in your area. Many internet sites will rate advisors based on their performance and client reviews.
Another way to find information about a particular advisor is by asking for a resume. Since most advisors are paid on commission, there is no reason for them not to be forthcoming about what they have sold in the past.
The more information you have about the investment options you are interested in, the easier your advisor will have to find a solution that works best for you.
Another thing to remember when meeting with a financial advisor is that they are professionals and they should be able to complete their job without undue pressure from you. If they try to push investment on you just because it pays them more, then it may be best to move on and find someone else.
Conclusion
The main reason why financial advisors sell life insurance is that it’s a great way to grow their business. Offering life insurance allows them to offer more products and services to their clients and helps them build stronger relationships with them. In addition, selling life insurance can be a very lucrative business venture, so many financial advisors see it as a way to increase their income.
Are you interested in learning more about how life insurance can benefit your finances? If so, contact us today for more information.
