Ask The Life Insurance Expert

QUESTION:

I am a 58-year-old and have never had a life insurance policy. Does everyone need one?

ANSWER:

I think it is safe to say not everyone needs to have life insurance. What we can do is examine the main types of life insurance, what are they typically used for and what events are likely to make someone reconsider their life insurance needs.

Let start by looking at the “why” part of the decision. The most common reason people purchase life insurance is because they love their family and want to have a financial plan for their surviving family in the event of an untimely death. Life insurance owners don’t want to financially burden their loved ones should they die. If you have a family who would be strained or struggle financially at that time, you need life insurance. Some experts say you should have a policy or policies with a death benefit(s) as much as 10 times your income. Although a life insurance policy won’t help alleviate the grief of a lost family member, it will help alleviate financial stresses caused by a loved one’s death. That was certainly what motivated me to purchase my first policy 20 years ago. I had a wife, 2 small children, and a big mortgage balance. At the time, I was the breadwinner of the family and there would have been no way my wife could have afforded the mortgage and other debt we had, let alone the cost of raising two kids on her salary.

Obviously, we are all in different phases of our lives and some do not have a spouse, children, or mortgage to be concerned with. Here are some other common “whys” that would lead someone to consider life insurance.

Cover Final Expenses: pay for the cost of a funeral, burial, final medical bills. Cover Debt: Credit Cards, Car Loans, Business Loans etc. Help in retirement: maximize a pension. Long Term Care needs: Assist with costs associated with home health care and nursing care. Transfer Wealth with tax advantages. Estate Planning.

Let’s not forget that our circumstances are always changing. The policy that I bought 20 years ago was a 30-year term policy. It has primarily served its purpose. The house is nearly paid off and the kids are going to make it through college with no debt. While there are 10 years left of that term policy it made sense to put another in place now rather than wait until I am older to apply for a policy to replace the original one because when it comes to life insurance, the older you are, the more expensive it gets. A smaller permanent policy was a logical choice for me.

Let’s look at some other common life events that might signal the need for a check-up.

Change in career/job, Retirement or approaching retirement. Birth or adoption of a child. Change in marital status. Purchasing a new home or refinancing current home. Incurring new debt/student loans. Taking care of elderly parents. Never purchased individual life insurance before.

I mentioned that my first policy was a term policy, but as my needs changed, I felt like I should have a permanent policy in place as well. Let’s look at the main difference between these 2 types of policies.

Term Life insurance will be the lowest initial cost life plan. Term coverage will provide life insurance for 10, 15, 20, 25, 30, 35 or 40 years. You pay a low, guaranteed premium that will not increase and have set death benefit that will not decrease during your “term period”. There is no cash value of a Term policy until one’s death. And if you outlive the term, there will not be a return on the premiums you paid.

Permanent Insurance, which includes Whole Life, will have a higher initial premium and provides coverage for a lifetime. Permanent Life insurance is beneficial for final expenses, covering needs associated with home health and nursing care, as well as for Estate Planning and tax advantaged wealth transfer solutions. It builds a cash value over time which can be accessed while still living should a need arise such as an unexpected costly home repair, down payment for a home, college tuition, etc. The money can be simply withdrawn, or a loan can be taken out against it.

Aaron actually has a Whole Life policy on each of his kids that he’s going to cash in to help them with a down payment for their first homes when they turn 30. The type of life insurance you buy should be based on the goals you have for the coverage as well as your budget.

Just like with health and Medicare, we are brokers of life insurance, meaning we are appointed to provide plans from the most competitive companies on the market for the many individual needs and goals people may have. And of course, there is not cost for a consultation.

If you have questions regarding life insurance or would like to make an appointment to discuss options or review your current policy, give us a call or email me directly at tony@getyourbestplan.com.