It is our fear based on which the life insurance companies thrive. The life policies that we buy are exclusively marketed and sold based on a single human emotion: fear. Fear of death, injury, and any catastrophe that might befall you or your family are the prime compelling forces that haul you towards a life policy. Few even might break free from the shackles of fear of death. But the financial fear of not being able to replace a monthly paycheck is huge and intimidating.
The insurance providers know these very well and that’s why they use these levers.
However, there are a few life insurance policies aren’t worth buying. These policies aren’t that much useful and don’t offer much return on the monthly premiums you make. It’s wise to put that money in an emergency fund for that rainy day, if it ever comes. Here are five life insurance policies you probably should never buy:
1) Life insurance for a child: "Child life insurance policies are sold to parents and grandparents by preying on their emotions," says Eric Stauffer, president of ExpertInsuranceReviews.com. Term life insurance policies are always there to replace an income in the event of someone’s death. If your junior isn’t a celebrity or isn’t responsible for a majority of the family’s income, you don’t need a life insurance for him or her.
The question is, do you really need a compensation or a reimbursement if your junior dies in childhood? Would it be sufficient to cover for the emotional loss?
If you really want to have coverage in case you need to pay funeral expenses for a child, add a cheap rider to your own term policy that would cover them for $10,000 or $15,000, but don't buy a separate policy, says Liran Hirschkorn, an independent life insurance agent.
2) Whole life insurance: As the name suggests, a whole life insurance policy covers the policyholder’s entire life. Since it offers protection for whole life, it’s more expensive than term life insurance policies. However, such policies also have a cash value, which grows over time, and the policyholder can use or borrow from that value. This can certainly be seen as an investment, though not a great one. Whole life insurance should not be an option for young people, says Matt Becker, a financial planner who has written about the subject.
"Life insurance is great when used properly. Whole life insurance is usually just expensive and burdensome," Becker says.
3) Industrial life insurance: Also known as accidental death insurance, these policies don’t pay you good and cover in the event of a mishap like losing a hand or leg, or dying while on duty.
"It all sounds good, but is riddled with exclusions,' says lawyer Mark Hankins. "The policy was once sold door-to-door to laborers with weekly payments and known as the 'Little Giant.' Its creator boasted on his deathbed he had never paid a claim.
4) Guaranteed issue policies: Also known as no question asked life policies, these policies truly have no exam requirements. You don’t need to answer any questions about your health. Such policies are quick and easy to get, says Hirschkorn, the insurance agent.
"The issue is that these policies are expensive, and also don't pay out the full death benefit in the first two years," he says. "This type of policy should only be considered as a last possible resort for someone with major health issues that can't get approved for a regular policy, not for anyone else where it would be a waste of money."
5) Final expense insurance: Final expense insurance policies are meant to cover for a funeral and other expenses when someone dies and typically come with death benefits ranging from $10,000 to $25,000 for people 65 and older. Though advertisements promise coverage for a "few dollars a day," even at that cheap price, it isn't worthwhile, says Justin M. Follmer, a wealth adviser and insurance professional in Charleston, South Carolina. According to him, someone 65 or older can often buy a much larger policy for the same costs.Blog Category