Dispelling a Few Common Insurance Myths
Have you ever heard people say things like guaranteed issue insurance is worthless, it’s impossible to sell a term policy, whole life is the only coverage worth the money, or modified endowment contracts are just another form of coverage? If so, you’ve been subjected to some of the more common insurance-related myths that float around from time to time. Fortunately, it’s easy enough to set things right with a modest dose of reality and truth telling. So, what is the honest version of each one of those pieces of misinformation?
Modified Endowment Contracts
A MEC, also known as a modified endowment contract, is not, technically speaking, a form of insurance. Instead, they are special collections of funds that look a lot like a life policy but are actually a collection of assets designed to be passed on to loved ones with no tax obligation or danger of going through probate. Those who opt for MECs view them as efficient vehicles for earning interest on the deposits while they’re alive and then passing the wealth onto their heirs after death. The important thing to remember about MECs is that they’re most useful if you have assets you don’t plan to use, like cash you might otherwise put into a low-interest savings account or CD. However, MECs typically pay higher returns and have the added advantage of giving your heirs tax-free payouts. The best way to find out more is to review a guide that explains all the details in everyday language.
Guaranteed Issue Coverage Can Be a Life-Saver
Far from being worthless as the erroneous belief goes, GI (guaranteed issue) life coverage can be an ideal choice for older adults who have no current policies in place and can afford higher premiums. The huge upside of GI contracts is that there are no medical questions. If you fit into the basic age and gender demographic and pay the premiums, you can typically get the benefits. On the flip side, premiums are quite high compared with standard options. However, if you’re over 50 and are willing to pay those higher premiums, then GI might be a perfect choice. It’s so popular that some of the world’s top-rated carriers write millions of dollars in GI policies every year.
Selling a Policy for Cash
Few people realize that you can sell policies for cash to third parties via life settlement companies. But even fewer know that it’s possible to sell term contracts for cash, depending on the medical health of the holder and the specifics of the contract. While the industry is relatively new, it’s growing fast as large numbers of insured people discover they purchased too much coverage when they were young.
There Are Alternatives to Whole Life
Whole life never expires until the covered person dies, hence its name. However, there are at least four other categories of financial protection people choose, including the aforementioned guaranteed-issue contracts, variable, universal, and term insurance. Term, as its name indicates, expires after a set number of years. Universal coverage comes with flexible benefits and premiums, while variable coverage includes a unique component that gives holders a choice of how the premiums are invested.