Life insurance (although it shouldn’t be) is still a very controversial topic. It may seem like there are many types of life insurance, but there are only two. These are term life insurance and life insurance (denominated in monetary value). Term insurance is purely insurance. It protects you for a certain amount of time. Whole life insurance is insurance plus a sub-account called a cash value. In general, consumers report recommending term insurance as the most economical option they’ve had for some time. However, life insurance is the most common form of insurance in the modern world. Which ones should we buy?
Let’s talk about the purpose of life insurance. Once the proper purpose of life insurance is scientifically determined, everything else will fall into place. The purpose of life insurance is the same as any other type of insurance. It is “loss insurance”. Auto insurance is insurance in the event of an accident involving your car or a third party’s car. In other words, you have insurance because you may not be able to pay for it yourself. Home insurance is insurance against damage to your home or the contents of your home. Because you may not be able to afford a new home, you buy insurance to cover it.
The same is true for life insurance. This is life insurance. If you have a family, you can’t provide for them when you die. So you buy life insurance so that if something happens to you, your family can replace your income. Life insurance is not designed to make you or your descendants rich, nor is it designed to give them a reason to kill you. Life insurance is not designed to help you retire (otherwise it would be called old age insurance)! Life insurance is a replacement for your income in the event of your death. But the bad guys make us believe that’s not the case so they can overpay us and sell us everything else so we can get paid.
How does life insurance work?
I don’t want to complicate things, but rather explain very simply how and what happens in an insurance policy. In fact, it will be simplified, because otherwise we would be here all day. Here’s an example. Let’s say you’re 31 years old. The typical 20-year term of insurance is $200,000, which is about $20 per month. Now …… If you want to buy a $200,000 whole life insurance policy, you can pay $100 per month. So instead of being charged $20 (which is the real price), you would receive an additional $80 and have it credited to your savings account.
The $80 will continue to accumulate in your separate account. Generally, if you want to withdraw some of the money from your account, you can lend it out and return it with interest. Now… Let’s say you’re taking $80 a month to the bank. If you go to your bank account to withdraw the money and are told that you have to BORROW your own money and return it with interest, you might go ahead and withdraw the money from someone else’s head. But for some reason, when it comes to insurance, it’s easy.
That’s because most people don’t realize they’re borrowing their own money. An “agent” (from the insurance matrix) rarely explains it this way. You see, one of the ways to get rich is to get someone else to pay, then turn around and borrow your own money and pay more interest! A mortgage is another example, but that’s another sermon.
Deal or No Deal.
Let’s follow the previous illustration. Let’s assume that a thousand 31 year olds (all in good health) have purchased the above emergency insurance (20 years, $200,000, $20 per month). If these people pay $20 a month, that’s $240 a year. If you multiply that number by 20 years, you get $4,800. Therefore, each person would pay $4,800 for the entire period. Since thousands of people have bought the policy, they will end up paying $4.8 million in premiums to the company. The insurance company has calculated that about 20 healthy people (ages 31 to 51) will die. So, if 20 people die, the company will have to pay 20 x 200,000, which is $4 million. In other words, if the company pays $4 million and accepts $4.8 million, it has a profit of $800,000.
Of course this gets easier because many people cancel their policies (which also reduces the number of claims) and some of these premiums can be used to earn interest, but you can get a general idea of how it works.
On the other hand, let’s look at life insurance in general. Let’s say a thousand 31 year olds (all healthy) buy the life insurance policy above ($200,000, $100 per month). These people pay $100 per month. That’s $1,200 a year. If the average life expectancy (in good health) of a person is 75 years, then people will pay an average of 44 years of premiums. If you multiply this by $1,200, you get $52,800. In other words, each person would pay $52,800 over the life of the policy. Since 1,000 people bought the policy, they will end up paying $52.8 million in premiums. If you buy a whole life insurance policy, the insurance company has calculated the probability of your death. What is that probability? 100%, because it is a life insurance policy (until death separates us)! This means that if we all keep the policy, the insurance company is going to pay out 1,000 x 200,000 = $2,000,000!
Ladies and Gentlemen, how can a company afford to pay $2 billion when they know it’s only $52.8 million? Now, like the previous example, this is an oversimplification because the policy will go away. In fact, the whole STB policy is lost because people can’t afford it, if you see what I mean. Let’s take a guy.A 31 year old man buys an insurance policy and he has to pay $52,800 and he gets $200,000 back? There is no such thing as a free lunch. The company is going to take $147,200 from him and help me get Ivan to sign that policy! Not to mention paying agents (commissions on all life insurance policies are much higher), underwriters, insurance companies, advertising agencies, 30 story buildings, etc.
It doesn’t even take into account the variables in the life and universal life insurance policies that claim to be good for your retirement. So you’re going to pay $52,800 for a policy that will make you rich and give you a $200,000 death benefit and an agent, staff and expenses? This must be fraud.
How could they steal from you? During the first five years of the policy, there may not be any monetary value accrued (you can check your policy). Maybe this distorts the value of the return (which is easy if the client isn’t sure how the investment works). Also, if you read my article on #72, you will clearly understand that giving your money to someone else to invest could cost you millions! You see, you could pay $52,800, but that doesn’t count the money you lose by not investing it yourself! If your agent can tell you that the company is going to invest your money, it doesn’t matter! Plain and simple, they’re going to try to climb on top of you or they’ll go bankrupt!
How long do you need life insurance for?
Let me explain what I mean by “blame-reduction theory” and maybe we can answer this question. Let’s say you and your spouse just got married and you’re having a baby. Like most people, they were just as crazy when they were younger, so they went out and bought a new car and a new house. Now you’re with a little baby and debt around your neck! In this particular case, if one of you were to die, the loss of income to the other spouse and children would be catastrophic. That’s life insurance. But it happens. You and your spouse start paying off that debt. Your children get older and become less dependent on you. You begin to accumulate assets. Remember, I’m talking about real assets, not fake or phantom assets, like home equity (just a fixed-rate credit card).
At the end of the day, this is what happens. The child has left the home and is no longer dependent on you. You no longer have any debt. You have enough money to live on and pay for the funeral (which now costs thousands of dollars, because DATE INDUSTRIA has found a new way to make money by having people spend more honor and money on a person after they die than they did when they were alive). So …… On that note, why do you need insurance? That’s right… Absolutely not! So why buy “whole life insurance”? The idea of a 179 year old man with adult children who are not dependent on him paying premiums is useless to say the least.
In fact, the need for life insurance could be greatly reduced and quickly eliminated if one learned how to accumulate wealth quickly, rather than accumulating debt first. But I understand that for most people in this materialistic, matrixed, middle-class society, this is nearly impossible. But let’s take a step forward anyway.
Insurance Policy Confusion
The following quote is very obvious, but very profound. Life and death are diametrically opposed. Why do I say this? The purpose of investing is to save enough money to prevent living until retirement. The purpose of insurance is to protect your family and loved ones in case you die before you retire. These are two diametrically opposed actions! So, if an “agent” comes to your door to sell you a whole life insurance policy and tells you that he can insure your life and help you in retirement, your red pill question should look like this.
“If this plan will help me retire safely, why do I need insurance”? On the other hand, if I’m broke in my old age and still need insurance, why isn’t that a good retirement plan?
However, if you ask an insurance agent these questions, he or she may be confused. This, of course, comes from the confusion of selling policies that are two opposing sides at the same time.
Norman Daisey said it well in “What’s Wrong with Life Insurance”.
“No one would dispute the idea of protecting one’s family while building a fund for purposes such as education or pensions. But if you try to do both jobs with the same insurance, inevitably both jobs are wrong.”
So, while there are many new variants, such as variable life and universal life, with lots of tricks (claiming to be better than the original life insurance), it’s always time to ask about the “red pill”! If you want to buy insurance, buy insurance! If you want to invest, then invest. It’s that simple. Don’t be fooled into buying a life insurance policy by an insurance agent who thinks you don’t have the ability or discipline to invest on your own.
If you’re afraid to invest your money because you don’t understand it, educate yourself! It may take some time, but it’s better than handing over your money to someone else to invest it for you (and get rich off of it). How can a business be profitable when it takes money from its customers, invests it, returns it, and gives all the benefits to its customers?
And don’t fall in love with the old “What if the deadline expires and you can’t secure another round?” . You see, there are many policies that are guaranteed until old age (75-100 years). Yes, the price is a lot higher, but you have to understand that if you buy a life insurance policy, at that point (if it happens), you will be cheated out of more money. That’s another reason to be smart with your money. Don’t buy policies that confuse you.
How much should you buy?
I generally recommend 8 to 10 times your annual income as a good amount of insurance. Why is it so high? Here’s why. Let’s say you make $50,000 a year. If you die, your family can take $500,000 (10 times $50,000) and put it in a fund that pays 10% of the expenses (you get $40,000 per year) without using the principal. So what you have done has replaced your income.
This is another reason why “whole life” insurance is bad. You can’t afford that much insurance while trying to buy a super expensive policy. The term of insurance is much cheaper. Also, don’t be intimidated by the high values. If you have a lot of obligations and you’re worried about your family, it’s better to be insured than uninsured. Buy something you can manage. Don’t sell what you can’t manage.