Every once in a while, there are topics in the realm of “investments” that pique my interest, or even cause me concern. Over the past year or so one of these is the topic of marketing insurance as an investment to young people.
For those of you who watch college sports on TV — or at live games — you may have picked up on what I am talking about. Obviously, college sports, especially football and basketball, are BILLION dollar industries. The industries surrounding the picking of teams and players are also beyond lucrative. And the advertising opportunities on television and at live games are immense. In walks my concern: all or most of the major insurance companies have become primary, big dollar sponsors of either or all:
- today’s college sports games,
- the schools competing
- the stations carrying coverage.
Why am I concerned?
“Investments” and the fees embedded in investments have been under fire for a large part of the past 10 years. There has been major progress made in the disclosure of fees for investments and the disclosure of fees paid to advisers. In fact, in what is considered major progress for the individual investor, Washington DC just in the past several weeks re-stated a critical rule generally referred to as the “DOL Fiduciary Rule.* Leave it to say that in terms of disclosing fees, the financial services industry may never have been held to a higher standard than today — overall. But there are always areas that are “less clear” or “less covered” by rules that come out of Washington DC. In my opinion, one of these areas is insurance as an investment vehicle.
My comments are not intended to attack a critical type of investment that nearly every human being will consider at some point in their lives. For example:
- Life insurance
- Homeowners insurance (often required to attain a mortgage)
- Auto insurance
- Business Interruption insurance.
In the instances mentioned above, purchasing insurance may be the smartest decision a person will ever make. BUT, when insurance is draped in an “investments” cloak to young, new-to-the-working-world people, I become concerned. The following are my thoughts.
In my opinion, the various major insurance companies are clearly targeting young college-educated viewers in order to send them a message that insurance is THE way to start to invest their hard-earned, new savings.* I believe this could not be further from the best advice — or from even mediocre advice.
- Insurance– as an investment-– is expensive, far more expensive than almost any other type of investment.
- Insurance is mostly not flexible (meaning in 5 years, at age 27-30, try getting your hands on the money in an insurance-based investment).
- Insurance has tax implications that are often not explained or considered by a young, first-time saver.
- Annuities are a type of life insurance. Plain and simple. Rarely the best decision as a first-time investor.
- A young, just-out-of-college person rarely needs life insurance, and if they do it might be part of a Trust or much bigger situation with other considerations and advisers involved.
I express these opinions out of genuine concern for young, educated but impressionable, newly employed people who often are in dire need of sensible advice that is in their best interests.
Observe the next time you are at a live college football game or watching on TV. Please share with your younger friends or family members who may have just graduated and entered the workforce. I would like to hear your thoughts, reactions and experiences.
*The DOL Fiduciary Rule is a topic that I will cover in a future article; To be fair, I do see other major financial services companies advertising as well but the insurance companies dominate.