Do you have trouble understanding life insurance? You’re not alone. Multiple research studies have found that today’s complex insurance plans, with intricate cost calculations and complicated legal language, cause problems for policyholders who want to understand and have more control over their policies.
One way to understand difficult life insurance concepts is by comparing them to something you already know or understand. Using an analogy in this way can simplify complex products, clarify your options and help you remember the details of your policy better.
Are you “renting” or “buying” your insurance
One common analogy for explaining insurance is to compare term and permanent life insurance to “renting” and “buying” something like a car or home.
Because term life insurance provides coverage for a set period of time, buying it is like renting an apartment. Both provide temporary protection and both have “rental” end dates. You may also be able to renew your policy just like renewing your apartment contract, but you will likely pay more because premiums and rent go up over time.
Buying permanent insurance, however, is similar to owning a home. The cash value of both accumulates, so over time both become assets that increase in value. And just like borrowing from your home equity, you can borrow from your permanent life insurance policy.
From life jackets and sinking ships, to cars on a bumpy road, there are many other analogies for life insurance. But none work as effectively as thinking about life insurance in terms of investing for the future. With term life insurance you are renting and eventually your lease is up. With permanent life insurance you own a whole-life policy which grows in value over time.
If you have questions or are ready to review your life insurance policy, contact Stratus Financial Partners today. We can help you avoid common term life insurance mistakes so that you can make informed decisions about your policy. The insurance world can be difficult to navigate. We’re here to help.