We left off at the end of Part 1, where I had already shared the secret to winning the game of life insurance (DIE WITH YOUR POLICY IN FORCE!). But even though the secret sounds so simple and obvious, we learned that so many people disregard it and lose the game. Why and how does that happen?
Well, we all die, so obviously these people don’t lose the game of life insurance because they live forever. They lose because their policies LAPSE BEFORE THEY DIE!
This can happen for a variety of reasons. Sometimes, it’s because they no longer want the policy… maybe they’re divorced or they bought it for someone they no longer care about, so they intentionally drop the policy. Sometimes, it’s because they run across some tough times, lose their job, and have some difficult decisions to make… like… should I feed my kids?…or pay this life insurance bill? Obviously, that’s an easy decision. Maybe there was a change in address and the life insurance carrier wasn’t notified, which would cause the insured to not receive bills and, in turn, cause the policy to lapse.
The bottom line on all these reasons—and others—is that the insurance company doesn’t care WHY they lapsed. They’ve collected premiums for years… but they NEVER end up having to pay a claim on that policy. In other words, they WIN and you LOSE.
And the profits the insurance companies make on all these lapsed and expired policies actually SUBSIDIZE the ridiculously high rates of return for the people SMART enough to continue to own their life insurance and DIE with their policies in force (you can call this group of people the winners circle!).
In Part 3, I’ll lay out exactly how to win the game with both a term and a permanent policy. Stay tuned!