Ed Hinerman On Life Insurance

Top 5 Stupid insights about Life Insurance - by guest blogger Tom Hinerman

April 24th, 2007

Today is a typical spring day in the Rockies, snow we hadn’t expected and mud.  Nevertheless as we contemplate a new year beginning it is interesting to look back on what has been said and as I contemplated the amount of wisdom set forth for people to review and learn from it occurred to me, a bunch of this stuff is junk.

So I give you my top 5 stupid insights about life insurance. 

1. Never buy more coverage than you need.  Don’t even get me started about this.  I sometimes feel the worse thing we teach our children is to take a “broke attitude” towards finances.  Lets see if this basic principle works on any other financial situation.  Never earn more money than you need.  Never invest more money than you have to.  Never save more money than is absolutely necessary. A better attitude should be buy at least the minimum that takes care of the need and up to as much as will fit in the budget.  Worse case scenario is that the bills get paid best case scenario is you raise the standard for the next generation of your family.
2. The healthier you are, the better the rates.  This has 90% accuracy in theory and 10% accuracy in practice.  The theory part is apparent, but the reality is that 90% of the people are losing money on their policy because they are matched up with the wrong insurance company or with the wrong type of coverage.  I have actually cut client’s costs after they have grown older and developed small medical conditions by matching them closer to an insurance company who is targeting them as their ideal policyholder.
3. I’m going out on a limb here, buy term and invest the difference.  I get a lot of people quoting A.L. Williams to me and I see articles abounding.  Nary a soul is practicing it though.  In a nutshell, you must first find out what the cost of term and whole life are, subtract the smaller number (term) from the bigger number (whole life).  And now you know how much of your income is going to be headed into your retirement program and how much is being spent on life insurance.  So why aren’t we doing it?  The other obvious? thing is because this scenario is extrapolated until retirement, why aren’t we shopping for policies that go to retirement.  If I meet another 30 something with a 2 year old kid buying ten year term and no clue about saving for college or retirement I’m going to have what my mother called a canniption.  So don’t get me started.
4. Buying no load life insurance is better than working with an agent.  Ironically this piece of advice followed, use an independent life insurance agent and followed by have your policy and financial interests reviewed on a regular basis.  Here is the fact that the editors of the stupid lists aren’t revealing to you.  The top 100 cheapest policies sold in the United States pay commission to agents and the no load policies are nowhere to be seen. Why?  Because the work the insurance agent does has to be performed by somebody.  In a no load situation the financial institution will do it and pay the commission as payroll, the companies who have to cater to independent agents have to price more competitively in order to be represented by those agents.  Therefore the agents themselves create a low cost frenzy that drives the market they are participating in down.
5. Any time you hear the words “buy only” you can pretty much write the author off as a moron.  I just read an article where the moron in charge said, “buy only term life insurance it is the only thing yada, yada, yada.”  He obviously has less knowledge than my average 70 year old clients because even they know that most term ends around the mortality age of the policy.  This means that if you live slightly longer than the average life span (age 87 currently) your option for life insurance just changed dramatically.  He also completely ignored looking at what you want to achieve in the future and to start working that into your plans today.  He actually said that a young male living in an apartment should only purchase a $10,000 term policy.  Refer back to #1 and read about “broke mentality.”

Well I’ve rambled long enough, the snow has stopped for now and I should probably get back to work.  

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