Buying Life Insurance

Three Motivating Factors for Purchasing Life Insurance

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Will Rogers, the legendary social commentator, cowboy, and humorist is reported to have said at one time or another in his life “a man deserves to die at least one time without life insurance”. This is true only to those who believe there is something beyond this mortal existence which makes us conscious of choices we made when we were breathing and moving upon this earth. To the unbelieving it is just a witty comment intended to focus one on the need to attend to some financial commitment we may have made with someone. 

In any event, it doesn’t take too long when discussing the topic of life insurance to come to the conclusion that there are only three major reasons an individual will be motivated to purchase life insurance. These three factors are love, fear, and greed. 

Love

Many people because they have made financial commitments to others feel it is their duty to make sure if they die prematurely they don’t leave a financial mess behind for someone else to clean up. When a couple finally can qualify for a home mortgage and they sign the financial papers they both have in mind if one of them will die before the mortgage is paid for they want the surviving spouse to have a home no one can take from them. The whimpering of a new born baby conjures up the dolls yet to be purchased, the baseball gloves to be acquired, future weddings, educational pursuits, musical concerts, fishing trips, and family vacations will all happen no matter what the future may bring. 

In the quiet moments when from the veranda of memories an elderly couple survey the past they will feel the satisfaction of knowing those memories had a financial umbrella securing them.  As they contemplate the inevitable march of time they know those future events will be secure under that same financial umbrella due to the financial planning done long ago. Yes, the sun will set upon their holding hands but it won’t cast a shadow of financial gloom for the loved one who will finish this earthly life alone.

Fear

A young entrepreneur stands on a balcony overlooking the floor of her manufacturing company with deep feelings of accomplishment, she sees laborers who have bought into her dream and are faithfully carrying out their assignments. It occurs to her without her vision and leadership those laborers would possibly be unemployed and missing out on their own personal aspirations made possible because of their employment. Her real fear is that no one may have the same fire she has and the fortitude to carry on if she is gone.  She realizes the obligation she has to pass this vision down so others may be secure in their futures. 

She sets in motion a plan to find an individual or two who would catch her vision for this company. Handbooks and training material are all placed in motion so the day to day operations can be transferred smoothly.The challenge upon finding those individuals and the training in place now is to have the time to refine the operations. What is needed now is a financial plan in place to cover the time needed to keep the business afloat and to alleviate the concern investors will have in the event of her death. 

She talks with her life insurance agent/ financial planner who suggests they place in force a business continuation plan which would spell out the details on how the business would be transferred, who would be in charge and how would funding be made available during the interim time it takes for investors to see the business is still viable and are again willing to provide capital for continued growth. Part of the plan then is a life insurance policy with sufficient death benefit coming to the business on the life of the owner. Her fears are alleviated and she can go back to doing what she does best in leading her company.

Two half brothers inherit a car dealership from their father.  Neither one of them have had any real life experience with operating the dealership and neither one of them have anything in common with the other . There is no open antagonism between them and they decide to make a go of this opportunity. As time goes by one brother becomes very proficient in the car selling side of the business while the other becomes an expert on the repair side. They see the symbiotic relationship between these two sides of the business that one side cannot survive without the other but they have no interest in learning how to operate the other side. They realize they could lose the whole operation thereby losing their livelihood. Each thought what happens to me if this were to occur. There has got to be a way I can protect myself against this catastrophe. They meet together to discuss this with their financial advisor who suggests they set up a buy sell agreement in which they spell out how they would buy out the deceased’s interest in the business and how they would fund such a buyout. They decide in the agreement to establish the value of the business and how they would periodically reevaluate that value. Each of them being able to secure his interest in the business in the process of this evaluation. In addressing the reluctance on learning the other side of the business, they agree in writing to look for individuals who could be trained to be brought in to satisfy the area of focus affected by the death of either partner. 

Again, a life insurance policy would be put into effect on each of the brother’s life with the business being the owner with the buy sell agreement spelling out the requirement the death proceeds would be paid to the business which would in turn use those proceeds to buy out the interest of the deceased’s estate. 

Each party walks away happily knowing their interest is protected both in life and in death.

Greed

Many a time in my selling career I encountered individuals who recognized the reality of death but could not bring themselves to acknowledging it could happen to them. They suffered from what I call the illusionment of invulnerability- “I am not going to grow old or die, there is a third possibility”.

I suppose based on some religious accounts there is another way of leaving this planet simply by being translated but one shouldn’t hold their breath thinking they might be one of those chosen few. So, hedging my bet what’s in it for me to purchase life insurance? 

First of all, the odds are pretty much in your favor of living to a ripe old age. The insurance companies are hoping you do. Particularly those companies who are selling mostly term insurance. It is widely accepted that less than 2% of all term policies ever pay a death benefit. It is also worth noting most term policies have a life expectancy of about 7 years. At that point in time, they are either simply dropped or are converted into permanent plans of insurance. 

You don’t have to die to have life insurance affect the quality of your life. This is especially true when meeting cash needs through whole life insurance. These policies have the benefit of a cash value reserve which are reserves set up to provide a resource for income at a later date. 

As soon as you pay your first premium a certain portion of it is allocated to the cash value reserves. It is very little in the beginning due to administrative expenses associated with it but as time goes by the accumulating cash value starts to draw some interest of its own and the nest egg grows. By the time you are age 100, the guaranteed cash value of your policy will equal the death benefit amount. Due to the interest being accumulating over time, the cash values will equal the death benefit much sooner than age 100.

If you were to use $1600 to buy a life insurance policy worth $100000 and died in the first year your rate of return would be 6250% where if you put $1600 in a bank and died in the same year and you got $1728, your return would be 8%. That’s not speculation but a real possibility as some have experienced. What is more impressive is that face amount is always there as an umbrella over the time period you are investing. You create it instantly upon signing a life insurance application and continue to pay the premium. Greed, maybe so but it is credible and possible.

Summary

It is obvious there are a myriad of specific reasons people purchase life insurance but each of them will fall into one of these three categories in the end. It doesn’t take a professional life insurance agent long to determine what your motivation is when he reaches into your pocket book for the payment needed to begin the conversation.  Love, fear, or greed or a combination of the three will rule the day.

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