I was having lunch at one of Hartford’s oldest continuous restaurants near the Frog Hollow section when I bumped into an old friend I’d known for years. We got chatting, and I gave him my business card for my accounting and tax services. This led to a chat about financial advice and a story about a financial advisor that raised some serious concerns.
My friend told me about a financial advisor who set up a $6000 annual IRA plan for his son, which seemed normal, mainly since they come with customary tax benefits. But then, it was revealed that the same advisor sold his 25-year-old son a $2 million insurance policy. This seemed odd and got me thinking. Did his son suddenly inherit millions of dollars in wealth? Was he the next Tom Brady, Bruno Mars, or Stephen Curry? If he wasn’t earning at least a million dollars annually, I struggled to understand why he would need such an excessive amount of money for his policy value.
Having a $2 million insurance policy when making $45,000 a year seemed like gross overkill, especially since he wasn’t married and didn’t have children. After all, what is the purpose of an insurance policy? An insurance policy acts as a carefully crafted financial tool designed to replace a person’s monetary value, yearly income, and belongings. The benefits of that policy generally go to loved ones upon the policy holder’s death.
Instead of saving money, the son spent hundreds of dollars each month on a policy he didn’t need. A more reasonable $150,000 policy would have been a better choice. Consider this striking difference: a $2 million policy costs between $400 and $600 per month, while a more sensible $150,000 policy only requires $25 to $30 per month. This significant gap highlights an unnecessary extravagance, leading to the realization that the individual is unknowingly spending an extra $570 each month – money that could be used for wise investment opportunities to grow their wealth and secure his financial future.
Seeking diverse perspectives before making financial decisions is akin to embarking on a quest for wisdom. Just as in the realm of medicine, where a second opinion holds great significance, garnering insights from various sources when crafting a financial plan is paramount. Each viewpoint adds a layer of depth and insight, ultimately contributing to the creation of a robust and tailored financial strategy that aligns with your unique aspirations and circumstances. This realization underscores the value of holistic advice and the power of informed decision-making in safeguarding and enhancing your financial well-being.
Instead of blindly following advice from just one financial advisor, it’s essential to be smart and seek advice from different sources. Remember that your financial future is in your hands, and it’s important to make choices that match your needs and goals. By considering your options and seeking diverse perspectives, you can create a financial plan that reflects who you are and sets you on the path to economic security. You control your financial destiny.
JoAnna Laiscell, February 27, 2024
