BEHIND THE MIKE

Ihave had the privilege of being in the life insurance business for the past 45 years. There are dozens of myths about investments and insurance that need to be debunked.

Myth Number One…  is “insurance is a lousy investment.” Duh… who said it is supposed to be an investment? Insurance is not an investment and investments are not insurance.

Imagine you have two cans. “Can A” has a little slit in the top of it. You can only put money in; you cannot take money out. This can earns 0% interest.

Now imagine you have “Can B” which has a lid on the top. You can lift the lid and put money in and you can also take money out any time you want for any reason. This can earns 15% interest.

Let us assume you put $500 per month into each can. In five years, which can to you think will have the most money in it (given the easy access you would have to the money in Can B)?

For the vast majority of people,  it would be “Can A” which pays 0% interest. It was never about “the rate of return on the money” but rather about the systematic way we go about saving money and not pulling it out every time you have a tiny problem.  

Even though “Can B” would be paying 15% interest, for most people it will not accumulate if you have easy access to it. Today’s millennials should be saving 40%- 45% of their gross income if they ever want to retire… starting with your first paycheck… and don’t touch it!

Myth Number Two: I will not need insurance after the age of 65. Perhaps you invested well over the years and you have successfully “self-insured.” If you did, you might have an estate tax problem and the cheapest way to pay that is with pennies-on-the-dollar life insurance.

If you did not invest that well, you probably have an estate problem, meaning you will not have enough money to provide for your family in the same manner you now provide. Your needs did not go away because you turned

65.

Do you remember the day you got married? When the preacher got to the part about “in sickness and in health, for better or for worse, as long as we both shall live.”  You might say it was the heart and soul of the entire ceremony.

Did you say “STOP…TIME OUT…HOLD IT? What’s with the lifetime stuff?” Did you say… “I only meant till age 65?” Of course you did not. That commitment alone puts you on the hook to do the right thing and provide for your family.

Myth Number Three…  “Buy term and invest the rest.” When you say it fast it sounds good. The only problem is most people do not invest the rest. They simply settle on cheap term insurance because of cost.

Even if you did invest well, investments are not guaranteed. Do you have the time to catch back up if you just lost 50% of your 401-K because the market crashed? What if the real estate market tanks again? Investments can and do fail.

There is a place for term insurance in your portfolio. People who know for certain that they will need to be covered at death should have permanent insurance. Are your needs short term or long term?

In 1993, Penn State University did a study of over 20,000 term polices with an aggregate face amount of over $4 billion. More than 90% were terminated or converted.  Less than one policy in ten survived the period for which it was written.

Ultimately, according to Penn State, only 1% of all term insurance resulted in death claims. It simply was not in force when you needed it the most—when you die!

Put another way, Penn State’s findings say “The odds are 100 to 1 against term insurance ever being a death claim.”

Michael Aun is a member of the Million Dollar Round Table, the top 1/2% of all insurance professionals in the world.