Why I met with a financial representative…
/I don’t think conversations about life insurance and investments were a thing for me growing up. I don’t remember my parents ever sitting down and talking to me about making sure that when I came of age I should get life insurance. It’s one of those things that shows up when you get your first job if they offer the benefit they ask you to sign up for life insurance. Investments don’t really present themselves either. It’s your 401K and well, that’s it. I don’t recall life insurance really being at my first job, although a 401K was an option. But I know that at my second job it was an option that I just kind of tapped into unknowingly.
So here’s what I learned so far: life insurance while at your job is sufficient, but only while working there—It’s a group policy and when you leave you cannot take it with you. There are different types of life insurance policy’s, including term life and whole life (otherwise known as cash value, universal life or variable life) insurance. There are different companies providing these policies. There are different benefits to life insurance policies. Quite honestly, there’s really a lot to know about life insurance. So here’s what I’m going to do in this post particularly: I’m going to tell you briefly what I learned. I’m going to tell you what I did. I’m going to tell you why. I’m going to invite you to submit and ask any questions that you may have, so I can prepare an expert to come in and give you this information in the form of a informational workshop without the intention to sell you anything, but with all of the intention to educate us as millennials to learn about life insurance, retirement and the different ways to grow our wealth.
I met with a friend of a friend, who happened to be a financial representative with Primerica, so it felt safe. It felt conversational and I really felt as though I was learning and not only being sold a product (let’s be honest, that is the end game). Let’s be clear, not all representatives will approach a client in this way—seeking to truly educate and explain the importance of paying yourself and planning for your retirement. Let’s jump in:
According to Primerica, “Life insurance should really be called “death protection” because its purpose is to protect the family against the premature death of a breadwinner or a caregiver. It acts as a substitute for income.” People who have others depending on them for income support. If you have a non-earning spouse and/or children, or some other significant financial obligation, you need life insurance. If you’re single or have significant cash resources, you probably don’t need it. I want to focus in on this part here because it is very important to land the point of this post being for millennials (and quite frankly the younger generations need to read this as well).
If you’re single or have significant cash resources, you probably don’t need it. Let’s read it another way, if you’re single AND DON’T HAVE SIGNIFICANT CASH RESOURCES, YOU NEED IT! Think about the GoFundMe pages that you see when someone’s family member passes away suddenly—there was either an insufficient amount of life insurance or no life insurance policy at all.
Cash Value or Whole life insurance offers you a “bundled” policy in which you can buy your death benefit and a cash value feature. Sounds good, right? I can get cash for my policy when I need it or I can cash out on my policy? Cash value policies typically have higher premiums; Includes an investment component; you can receive cash value or your life insurance, not both. This too sounds good, but let’s look at the money you’re putting in. Agents tend to sell whole life/cash value policies because they can make more money. You may be putting money in for investments; however, for the first 2 years, your money pays the company. When you take out a loan on your cash value policy, you have to pay your money back with interest to the company. Cash value policies have a low rate of return on the money you’ve “invested”, meaning you put more money in than you get back. And unfortunately, about 90 percent of the time, when the policy holder or the family needs the money, they are only getting the amount of the policy and not the amount saved in the account. The company keeps the rest that was invested. By no means is this a concrete example, but you put in $300 a month for your policy that is $150,000. Your policy is worth $275,000 because of the money earned through investments. You either get the $150,000 for your policy amount OR the $125,000 for your investments.
Moving on to term-life insurance: Term-life is less expensive. You get coverage for when you need it. Think of it like car insurance, you pay for it just in case—until you are ready and set for retirement. A lot of people say, well what happens when you get older and you no longer qualify for term-life? That’s where the planning for retirement and being older in life comes into play. When you reach retirement age, you was to be financially independent. In life today, we are living in high debt, with mortgages or paying rent and a unfortunately, a loss of income would be devastating. With term-life insurance, you have the opportunity to not only get coverage when you need it (younger in life) for “death protection” to protect your family, but also pair it with an investment (because you’re not spending all of your money on high premiums with whole life) to plan for your retirement. You can create a plan to become debt free.
There’s so much to this and so many other things that I did over the 2 meetings I’ve had with my financial representative. Here’s a summary of them all:
I signed up for term-life insurance policies for myself and Aiden (it was necessary to put him on the policy because you never know what could happen. No one wants to think about it, but it is the reality).
I created a 529 plan for Aiden that will save money for him for college and money that will be invested to grow over time
I transferred over all of my 401K or retirement accounts from previous jobs that I had - This was important because money earned or matched by an employer was not being invested for over a year or so because of my own negligence in not rolling the money over. My money is being moved from a traditional IRA to a Roth IRA (tax now, not later —meaning tax on $10 and not on $100). I’ll explain these terms in another post.
I’m creating a plan to decrease all my debt and “debt stack”.
I’m putting my “emergency” savings into a money market account. It will allow money that would have otherwise sat without earning money to earn dividends (out of sight, out of mind).
At this point, I’m letting my money work for me. I’m learning as a I go and trying to set Aiden up for wealth, success and financial independence. You know, something that some of our parents may not have been able to do for us. Let’s look at some of these practices:
Lower Class tends to look at brands and what people are wearing
Middle Class tends to focus on degrees and titles (Director, VP, etc.)
Upper Class and Wealthy tends to focus on net worth, business ownership and passive income
I’m trying to change that narrative and get to that last bucket for Aiden.
The key takeaways from this post are that we need life insurance, specifically term-life insurance so we don’t put our families in debt trying to bury us and cover the expenses we left behind. That’s the reality of it. The other reality is that we don’t need whole life insurance or cash value insurance to take away $300 a month, when we can be putting $50-$80 a month towards a term-life policy. We can; however, take the difference of $250 (or whatever you can afford) and invest it to plan for retirement (let’s face it, social security may not exist for us). If you have children, you can also plan for their future with a 529 or an UGMA (I’ll talk about this in a different post). Money that you want to save and increase in case of emergency or for short-term savings in general can be placed in a money market account to earn dividends.
This post was 3 days later than I wanted it to be and I’m realizing it is because there is A LOT of information and it was very hard to synthesize. I am by no means an expert. This is just what I took in and what I’m getting out of it. I want everyone to get the goods, secure the bag and increase their money. Don’t worry, I’ll be bringing someone to you, who is an expert and will present this to you in a session! Stay tuned!