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Cheap life insurance and low levels of savings


Most people do their run through the life insurance maze during their late twenties and early thirties. With the policy in place, most tend not to think about it again until there's an emergency or they approach old age. This is a mistake. The decisions you took thirty or forty years ago are guesses as to current reality. You do your best. The experts also have good justifications for what they tell you. But times change. Even six months before the housing bubble burst in 2008, no one was predicting the recession. So this is not anything you should feel bad about. But to protect yourself you should revisit the life insurance decisions every five years. That way, you can see how well or badly you are placed and, more importantly, decide whether it's necessary to buy additional cover. As this is written, the stock markets are at new highs in dollar amounts and the economy shows signs it may be picking up. Unemployment also seems to be dropping. Yet this recovery has come at a price.

People have been paying down their debts. Although this is good in theory many have done so by selling off their investments and using their savings. In the long term, carrying less debt is good for the household budget but, in the most recent studies, nearly 60% of households reported they held less than $25,000 in savings and investments. In 2008, only 50% reported such low capital holdings. In real terms, this means a vast number of families will not have enough money saved when it comes to retirement. This somewhat alarming fact comes as life expectancy rates are also rising. This is not only going to affect individuals. Where companies have retirement plans for their employees, the additional cost as people live longer will add billions to their obligations. The same applies to public service pension plans where high benefits were agreed when economic times were good.

If people do not have savings, any emergency is going to place a disproportionate strain on family budgets. The only asset they have is an insurance policy. If this is a cheap life insurance policy taken out years ago, it's unlikely to have any significant cash value and no option to convert to an annuity to provide additional income during retirement. A further factor to take into account is the number of employers who are now backing away from pension commitments for new and some current employees. Despite the highs in the stock exchanges, the investment of pension funds has been producing very low returns. Most employers are facing big deficits in their pension obligations. This means you should be reviewing your cheap life insurance policies to see how adding new cover can help provide a better level of protection for you during retirement. Remember most people are now looking at about twenty years of life after retirement. That's a long time to keep paying the bills.

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