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Is “Prepaid” Life Insurance Becoming Popular?

Life insurance is an important piece of long-term financial security for local families. It is entirely reasonable for parents and family breadwinners to wish to provide some security to their loved ones in case the unthinkable happens. However, with money tight and uncertainty about financial security remaining, some are unsure about the benefits of life insurance. Those in the life insurance industry have argued recently that their market is shrinking and returns are dropping. To jump-start the industry, some are now turning to a new product to sell to more community members.

A recent story in “The Motley Fool” provides some context for the product that may or may not be a good fit for some local families. This unique insurance option is actually a prepaid life insurance policy. It has been called the “marvel of simplicity.” The product, spearheaded by a unique collaboration between MetLife and retail giant WalMart, is essentially a short-term one year life insurance policy that provides up to $25,000 in coverage. These are not huge sums, but the idea is to open the insurance up to a much larger market. MetLife likely sought out the arrangment so that they could tap into Walmart’s large consumer base while saving costs of middlemen broker fees.

Interstingly, this approach is not the first of its kind. In the past Canadian insurer Manulife offered life insurance products through the U.S.-based big retailer Costco. In addition, in the past Walmart has sold customer various financial products, even including things like mortgages.

The article argues that MetLife is engaging in this somewhat unique life insurance marketing tool as a way to bolster sales in a slagging market. This latest move seems targeted at the less affluent and perhaps less financially aware community members. Selling financial products to this base–like prepaid debit cards–has proved lucrative in the past, and so MetLife may see long-term benefit down the road.

But is this sort of very short time prepaid life insurance plan right for you?

It is impossible to make any specific pronouncements about the merit of these financial tools. However, it must be noted that these one-year agreements are far different than long-term plans that provided security well into the future. As always, it is critical to seek out the help of financial experts, estate planning lawyers, and others who can explain what issues to consider and how any financial move might affect long-term plans.

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