Reader question: Will life insurance solve all my problems?

Hey Dave!

My husband and I are both 44 and enjoy stable careers – I teach high school English, and Dan’s a web developer with a company that’s enjoying continued growth.

When we started off our professional lives, we just tried to make ends meet. Now as we’ve grown as a family and our incomes have grown, we’re starting to plan for the future. When we were dating, we shared a dream of traveling during retirement, after making sure our children were “off the books”! Now that we’re married, we’ve added two children (10 and 7) and we need to get an idea of how to plan for the future. 

Providing for our children’s education is incredibly important to us. The combination of them quickly becoming teenagers and our aging parents is making us (well, mainly me) a little nervous..

A co-worker who is in a similar situation let me in on a tip from her financial advisor, who’s really sold her on the idea of investing in life insurance. I’m skeptical because it sounded too good to be true.

I went so far as to speak with her advisor, and I’m not completely convinced. The financial advisor did explain that you could borrow against life insurance for any educational costs and retirement, but within 10 minutes was trying to get me to sign paperwork. This irked me and I don’t like the idea of having to “borrow” against insurance to pay for college.

Is investing in life insurance really the new golden ticket to achieving your golden years?

Best,

Jessica

I have a question...


 

 

Hi Jessica,

Thanks for your question. Advisors who just sell insurance are the best, aren’t they!! (Note my sarcasm….)

The idea of a single “right way” of investing is an idea, and a bad one at that. The reason – your financial position, obligations and goals are unique to you.

When financial professionals advise you of “the best / right / only” way, it’s usually becuase it pays them the most money to offer that kind of advice. In a best-case scenario, the person offering you advice genuinely wants to help. But there are some advisors who play off people’s fears, too. And a not-so-best-case scenario is that the friendly tip is really just a shabby advisor trying to put more into their own pocket.

In the case of your friend’s financial advisor, I think it may be the latter. No professional should consider offering guidance without first getting to know exactly where you’re at financially, and discussing options for a complete personal investment plan.

While life insurance is always a good idea to cover your loved ones in case of a tragedy, you should never buy more than you actually need.  And for the most part, using “insurance for investing” never works as well as plain and simple “investing”.

Additionally, while it’s true that you can borrow from the cash value of your life insurance to pay for things like educational expenses or retirement, there may be restrictions that require you to add extra funds if the investments inside the insurance aren’t doing well. There are also many fees and expenses that could eat into your returns. It’s never as simple as the advisors, and I use that term loosely, make it out to be.

Instead, you may want to get an opinion from a second, unbiased source. Make sure your financial advisor not only listens to your goals and concerns, but also poses “What if…” questions to gain a full understanding of your priorities.

A good financial advisor should not only be someone who offers expert guidance, but works collaboratively with you to choose investments that support your unique goals, current and future.

I can’t offer you an answer to your question today as I don’t know your situation inside-and-out. Insurance may be answer to one part of your situation, but it would NOT be the answer to the whole thing. My advice is to find a fee-only advisor who spends more time listening than they do talking, and take your time to understand your options before acting.

Best,

Dave