What Is The Best Insurance?

The purpose of insurance is simple: If God calls you home today, your kids won’t go hungry. Many people misunderstand this simple logic. I know some people who buy insurance for their kids. I heard one person bought insurance for his baby. Huh? I don’t get it. Who’s the kid supporting? Her Barbie doll? Her kitten? Or some single people buy huge amounts of insurance— even if they have no kids or no aging parents to support. Sure, they can buy a little insurance to take care of their funeral expenses, so they don’t become a burden to their siblings. But they don’t really need big insurance. I repeat: Buy insurance if you’ve got people depending on your income. So that if your income suddenly disappears because you disappear, the insurance money will support them. But some insurance agents will try to sell you stuff you don’t need, just to earn their commission. [impt text="What’s the Goal?"] But our goal in the TrulyRichClub is very simple: To build your wealth over time so that you don’t need insurance anymore. In other words, the goal is to be self-insured. But that doesn’t happen overnight. Building millions in your investments will take many years. So while your millions aren’t there yet, buy insurance. [panel-image src="http://moneygizmo.net/wp-content/uploads/2012/05/insurance.jpg"] [impt text="What kind of insurance?"] Buy Term Insurance. For TrulyRichClub members who are learning how to invest, you should buy pure and term insurance. It’s the cheapest insurance. Any other insurance product is a bundled product combining insurance and investment. It sounds nice. They even come by nice names: Whole Life insurance, Universal Life insurance, etc. Compared to pure and term insurance, these are very expensive insurance products—precisely because they have an investment component. These bundled products are Okay if you don’t know how to invest. And the truth is that many people really don’t know how to invest. And many people are so undisciplined, they need an insurance agent following them up every month to give their monthly payments, with the threat of “forfeiting” or losing their entire insurance if they don’t pay. [divider] But if you’re a TrulyRichClub member, you shouldn’t buy these bundled insurance products. Why? First of all, you already know how to invest (in equity funds and in the stock market). Second, you’ve got the discipline to do it each month. No need for “threats” hanging over your head. Here’s the shocking truth: Most of these bundled insurance products with investments only earn between four percent to seven percent each year. Yes, that’s better than the bank. But that’s much lower than what you’ll earn if you invested your money yourself in equity funds and the stock market, where you can earn between 12 percent to 20 percent each year—if you invest long-term, over 20 years or more. That difference is huge over time. So buy term insurance. [impt text="Buy Term, Invest the Difference!"] So instead of buying bundled investment product which is expensive, buy term insurance—which is cheap—and invest the difference yourself. That’s where the wise statement come from, “Buy term, invest the difference!” [divider] Warning: Some insurance agents will not like you to buy term insurance. Because their commission is tiny if they sell this product. They will always push for bundled insurance products. So ask for it. Tell him, “I like to buy term insurance only.”

Mark Hugh Neri

Read more posts by this author.

Subscribe to Money Gizmo

Get the latest posts delivered right to your inbox.

or subscribe via RSS with Feedly!