What readers have to say is far more convincing than anything I can write.
I’ll start with a letter from Glen Schmidt, of Lakewood, Calif., who lost his wife to pulmonary embolism just a few weeks before their son turned 1 year old.
“My wife, Lori, died at the age of 33,” wrote Schmidt, 31. “She wasn’t feeling right for a few days but essentially it was completely unexpected and devastating.
“We enjoyed your column and talked about our financial lives being on a train track. My wife understood the discipline it would take to build our future and that we may have to sacrifice some now.
“The reason for my telling you this is that we had not yet obtained life insurance for our family. …It was on the list of things to do. I even had requested information from a few places. Although I knew it had to be done, I never thought that a month or even a year would make a difference ….
“The point is that the unthinkable does happen and you MUST protect your family. … Although I have been the primary earner this past year [she took a leave from being a teacher to raise our son], our situation has changed drastically.
“We now will have very expensive day-care costs and I will not be able to pursue my career in the same manner as before. A good term life insurance policy would have afforded me the flexibility to take some time to be with my son and to try to deal with this incredible sense of loss. It would have given some breathing room.”
Schmidt said he wrote “so that someone else may learn from my experience. “
There isn’t much I need to or can add, except to offer my sincere condolences. I’ll repeat: If somebody depends on you financially, you need life insurance to guard against a premature death. And both spouses with young children should get insurance even if one stays at home.
The next letter, from a Chicago reader, is about viatical settlements.
When you invest in a viatical settlement, you buy a life insurance policy from a terminally ill person, or “viator.” When the viator dies, you collect the death benefit, which is more than what you paid for the policy.
Sellers of viatical settlements like to claim the amount of the investor’s profit is “guaranteed” because there is no question the terminally ill person will die at some point. But one of the risks often glossed over is that the viator may live way beyond his life expectancy, forcing the investor to wait months if not years to get his hands on the money.
In that case, the investor also may have to pay the premiums to keep the life insurance in force, lowering if not wiping out any profit.
“I have been caught in such a squeeze to the tune of my entire retirement savings of $100,000,” said the reader, who asked me not to use his name. He has been informed he must start paying the premiums–$1,800 per year–because four viators are still alive.
“If I had been told that I would have to pick up the premiums, there is no way I would have bought,” the reader said. Unfortunately for him, this common provision was written into the contract that he signed, even if he claims the salespeople never told him.
“All I know is that if I don’t start sending in $1,800 a year, I am out $100,000,” the reader said. “Now I’m starting to feel guilty because I know the only way for my investment to be safe is for someone to take a turn for the worse.”
There are at least three lessons here. First, never put your entire life savings into any one investment. Second, be extremely leery of any claims of “guaranteed” profits. And third, read and re-read carefully any contract you sign and have an attorney review it if necessary.
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Humberto Cruz can be reached at AskHumberto@aol.com or c/o Tribune Media Services, 435 N. Michigan Ave., Suite 1500, Chicago, Ill. 60611.
