Happy! You have finally navigated to consider a life insurance policy. We understand it’s not easy based on having fun, so we’re going to make it easy for you.
You are here because you heard about global life insurance policies. Maybe someone told you that this is a great way to make money because fifty percent of what you pay each month goes into a unified savings account. And maybe you’re thinking, That seems like a win-win. I got some!
Wait for the 2nd one! You must have the facts before you start calling insurance providers. We want to show you why it’s never a wise transfer to spend money on your life insurance policy. Are you ready? Let’s dive in.
A global life insurance policy is a type of life insurance policy that lasts your entire life—up to your 90s and beyond. It is sometimes known as a cash value life insurance policy. That’s because it has a savings account in the plan.
You pay directly into this savings account whenever your insurance premiums schedule (premiums are monthly fees that keep insurance running). Once you’ve developed cash value, you’re free to take it—as you would certainly do with a regular checking account. But it’s not as easy as you might think. We’ll cover why later.
With a global life insurance policy, you pay a regular monthly fee which is divided into 2 components: One covers the life insurance policy and the other goes into financial savings and investments.
This is meant to be more flexible by allowing you, the plan owner, to choose how much premium you pay within a certain range. The minimum amount is determined by the cost of insurance, which includes your death benefit and management fees.
Anything you pay above this premium includes your cash value, which is guaranteed to increase the following day according to the minimum annual interest rate set by the insurance company (but may grow faster depending on how well the market performs).
Many people decide to pay the maximum decent premium, set by the IRS, in the early years so they can develop greater value for money (and then use that money to cover expenses later on). But this is a dangerous move because insurance costs will increase as you age! The question is, do you have enough money to cover it?
Global life insurance policies can get quite complicated when you start to unpack them. Actually, there are actually 3 types to choose from. Those are 3 kinds of life insurance policies that you definitely don’t need.
You’ve been listening to the stock exchange, right? Have you ever listened to an index like the S&P 500? Dow Jones Commercial Average? Nasdaq? They measure how well the market is performing. For anyone with an indexed global life insurance policy plan, cash value is tied to one of these indices. So if the market is successful, the cash value will increase. But there’s one thing that’s interesting—the rate will continue to be slightly lower than the efficiency of the index because insurance companies will take up a significant share of them. And if the market refrains from doing well—you think it does—the value will fall. This will affect your costs for better or for worse.
If you don’t like the idea of attributing your costs to market efficiency, an insurance representative can try to sell you a global guaranteed life insurance policy. With this plan, your costs stay the same no matter how well the index performs because the interest rate is fixed from the start of the plan.
And it has a “no time lapse” guarantee (hence the name), so as long as you submit your premium check, you’ll have coverage for the rest of your life. This is the least risky global life plan.
But here’s the catch. Because your costs don’t change based on market efficiency, there’s little cash value in them. That’s because these plans aren’t really designed to make money. Too busy trying to keep up to date with insurance costs.
This life insurance coverage allows you to turn cash value components into co-money. Shared money is a pool of money managed by a group of financial investment professionals. Your cash value is part of that pool, and is spent on multiple large transactions at the same time.
Don’t get us wrong. Mutual funds are a great way to spend because they expand your risk (that’s elegant talk for certain productions you don’t put all your financial investment eggs in one basket). But remember, life insurance policies are meant to support your loved ones once you graduate, except expenses. And all of those expenses don’t come cheap—insurers charge huge fees that will take a significant hit from your bottom line.
As we’ll show you, it doesn’t really matter which one you choose. All 3 packages come at an incredible cost. And if you want the best value, you won’t be spending any cash. Stick to financial investments outside of life insurance policies.
Global life, along with variables and whole life, are 3 amigos on the planet of cash value life insurance policies. They get the job done to cover your income if you die, but they also serve as a savings account. Cash value is the accumulation of cash due to a savings account. Insurance providers charge a very valuable cash return price as a financial institution would.
All live returns usually just maintain—and sometimes fall below—inflation. Global and variable prices are harder to figure out, but they can be much larger than lifetimes. But, as we’ve said time and time again, the costs attached to a global living plan will cost you a lifetime.
That’s why you have to constantly spend money together on major developments that are completely separate from your insurance coverage. You can generate, typically, 10-12% returns without those hefty fees.
Plus, when you subtract how much of your money’s worth of premiums goes into producing your cash, you’re probably going to die a bit on the inside, especially if you compare it to a life insurance policy call (which we’ll cover later). Do the math and you’ll see, like orange juice on a grain, you have to defend your financial investment from your life insurance policy!
There are many bad aspects of a global life insurance policy, but the worst is what happens to the value of that money when you die. The fair payment your family will get is the death benefit amount. Any cash value you develop will be returned to the insurance company.
Let it soak in for a minute.
Plus, if you ever take out a portion of the cash value, that same amount will be deducted from your death benefit amount. It was a lose-lose situation. You can consistently spend for years, but one way or another the money will go back to the insurance company.
The truth is, that’s how they make their money—and that’s why they sell you so quickly in the first place. Don’t let them fool you!
The costs you will incur for a cash value life insurance policy are enormous. There is a fee to start insurance, a fee to cover commissions and a fee to cover costs for the insurance company. And the bottom line is, because of those exorbitant fees, you won’t develop cash value in the first 3 years. There is the factor of insurance providers trying to sell you a global life insurance policy. That’s because they make more money if they do.
As long as we’re against you buying into a global life insurance policy, it’s certainly not true to say that there are no benefits. So to really make sense, we’re going to list you the awesome benefits, then follow up with all the outrageous downsides.
Chances are, if you’re here reading about global life insurance policies, you’ve probably heard of whole life insurance policies, too. Both are designed for the long term. Both develop cash value. And both are bad ideas! But here is how they differ.
Global living comes with what insurance geeks call a multipurpose fee. This means you have some opinion about how much you put into the cash value side of your plan and how much you will pay in fees, but there are still rules for this set by your insurance provider. The entire cost of living is fixed, so it can’t change either if you wish.
Remember earlier when we said that if you want to take part of the cash value of a global life insurance policy, it will definitely be taken from the death benefit? Well, all life insurance policies are also charged. If you get a loan versus your cash value, you will pay an outrageous rate of interest on that particular loan.
And if you decide to give up your entire life plan, you will be hit with the unpleasant accusation of surrender. And if you do, you will no longer have coverage. Isn’t that why you got a life insurance policy in the first place?
Unlike global, call life insurance policies only last for a few years. We recommend it for 15 to 20 years. And that’s just life insurance—nothing more, nothing less. Without the dead weight of that cash value, it costs a lot, it’s more affordable.
So if you take the money you’ve saved by choosing calling life ($36 per month) and spend it in co-money for 20 years, you’ve earned $27,217! And all of that will definitely go into your pocket—not the insurance company.
Plus, you won’t need universal lifetime coverage if you start spending money on retirement today. You will be self-insured. What do we mean by self-insure? If you spend 15% of your home income over the next 20 years, by the time your calling life plan is complete, you won’t need that death benefit either.
Call and global have one point in common: If you die during the plan, the insurance company will pay the death benefit. But that’s where they differ which is really important. You will need deep pockets if you choose a global life insurance policy.
Remember what Dave said about life insurance policies: “His job is to change your income when you die.” If you get a life insurance call in the 15-20 year measure and ensure coverage is 10-12 times your income, you will be set. Life insurance policies are not supposed to be long term.
So don’t overcomplicate it with long-term plans like global. The part of the money put into those items will definitely either put you in your budget or be saved for the future. By spending outside of your insurance, you can control how and where you spend your money.