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Friday, July 18, 2014

Ten Things Life Insurance Agents Won't Say: #1

Once again, just to be sure, I remind you that the titles of these posts are MYTHS.  And here, courtesy of MarketWatch's Daniel Goldstein, are ten myths all in one place at the same time.  Yum!
I work very hard.  Much of what I do is extremely challenging and complex.  So I love the intermittent easy ones, even if it means occasionally shooting fish in a barrel like this.  Since there are so many fish in this particular Ten Things barrel, I'll snare them one at a time in a series of blog posts.  (But FYI, here are the Ten Things all at once)

Thing #1 "that agents won't say" (because we're* all ignorant crooks, is the implication):  You actually have too much life insurance. 
Before we torpedo that already capsizing assertion, let's first dispose of the myth that you even "need" life insurance.  Life insurance isn't a need.  It is a luxury.  Food is a need.  Shelter is a need.  Love is a need.  Life insurance is a luxury.  People buy it because they want to. Unless they have to, to satisfy a business and/or loan contract or divorce decree.  Life insurance needs analyses attempt to calculate your human economic value to your beneficiaries.  Chances are that they wouldn't need to replace 100% of that economic value.  But don't think the average life insurance policy in force today comes anywhere close, as you'll see later.

As a holistic retirement planner, I stress test all my plans asking and illustrating, "What could go wrong?":
  • What if the market crashes again.  And again?
  • What if rates of return aren't as good as we expect?
  • What if inflation rears its head?
  • What if one or both of you needs long term care?
  • What if one of you dies?
  • What if you lose your job?
  • What if you don't wait to age 70 to turn on Social Security?
The death of a high income spouse can be devastating.  And in these days of dual income households, the death of either spouse can derail the most carefully crafted plan.  Which is where life insurance comes in.  Leading to why life insurance agents won't say "You actually have too much life insurance".

It's handy when a financial entertainer like Mr. Goldstein disproves his own assertion in the same paragraph:  the average face value of life insurance policies was $163,000 in 2012.  According to StatisticBrain the mean mortgage balance as of 2013 was $188,000.  $163,000 death benefit is "too much"?  I beg to differ.  The reason no life insurance agent will say "You actually have too much life insurance" is this:  It ain't true. (to put it scientifically)

Mr. Goldstein attempts to prove his point by specious comparison, as most sycophants do:
"The average face value of a policy in 2012 was $163,000, up 37% from a decade earlier—a faster increase than the rise in average salaries over the same period, according to the Social Security Administration."

So what?  My Montmorency cherry tree is up 50% over the last decade.  Goldstein assumes the only function of life insurance is to replace income.  And even that false assumption serves only to prove that $163,000 is woefully inadequate to all but minimum wage workers.  (Alluding to the SSA lends the illusion of authority.)  A more relevant fact is, over the same period, the average mortgage balance doubled.  Anyone heard of "debt" as a reason for life insurance?  Such a narrow position is dangerously ignorant and contrary to not only all the evidence but also to how Americans feel about it:

"Forty-four percent of all U.S. households (48 million) either don’t own life insurance and believe they should, or own life insurance and believe they need more. Among those that already own some life insurance, 40 percent believe they don’t have enough."  -LIMRA 2005
Things have not improved in the nine years hence.  I fail to see how the author could possibly think his position is beneficial to his readers.  I call it financial porn.

*Yes I include myself in this group because I retain all the training, experience, and credentials.  And I still sell the stuff because it is so important.

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