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Cheap life insurance may need to be reviewed


In theory, America is recovering from the recession. Indeed, there's been a significant rebound in the equities market and there are signs the housing market may be recovering. But sentiment remains deeply divided. Many remain deeply pessimistic about their own financial state and how well the economy is likely to perform in the immediate future. Others have grown more sharply optimistic. Unusually, these views are polarizing to the extremes with fewer "don't knows" in the middle. In a recent survey, slightly more than one-third of those surveyed expect America to drop back into recession during the next twelve months. These people remain very concerned about their job security, believing the threat of unemployment is unacceptably high. At the other end of the spectrum, almost 10% of the optimists have no worries about unemployment. What are people doing with their money?

Paying down their debts

Perhaps surprisingly, people are still concerned about the level of debt they have and continue to use their discretionary income to reduce their exposure. This makes the recovery slow. If consumers save or pay down their debts, they are not spending on goods and services. This reduces demand. Manufacturers and service providers reduce output and lay off staff.

Saving for retirement

People have overcome their fear of living within a limited budget. Now they fear life when they retire. In part this is driven by the rising cost of medical treatment if they fall into the long-term care system which has very high monthly costs.

Given these two missions, people should review their existing provision for the future. When people are younger, they tend to assume everything will work out well over time. This is why many start off with cheap life insurance . They focus on the 401k as the main way of providing for retirement and assume a simple lump sum on death with be sufficient. However, the 401k savings accounts took a serious hit in 2008 and many are still underwater. This should have persuaded many to look at their life cover. Without a reasonable investment provision to create a cash sum, there's no safety net. People with an existing term policy should consider whether it's possible to convert to a permanent policy. If you have a permanent policy, you should look at two quite different questions:

(a) Do you have the right to convert the policy into an annuity? This is useful because it gives you a monthly income to help pay living expenses or for unexpected medical expenses.

(b) Investigate the life settlement market so, should the worst happen, you know how to sell your existing permanent policy. If there's a sudden emergency and you have not done this basic research, you might feel obliged to surrender your cheap life insurance policy to the company. This never produces a good price. If you are at least 65 years old and have a policy worth at least $100,000 you can sell.

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