The Low-Down on Life Insurance

The three “S’s” is a great mind trigger for your finances: Save, Spend and Share.  I think most of us have the second “S” down, so let’s explore some of the ways to ensure we can still apply the second “S” in the future by educating ourselves about the first “S” – SAVE!

Life Insurance is something we come across all the time when learning about savings.  Most of us put it off or don’t even consider because, well, quite frankly, we don’t like thinking about the fact that we won’t live forever.  HOWEVER, the horror stories and hindsites that exist within families by NOT having life insurance are overwhelmingly a disruption in the lifestyle and course of the family.

The following questions will educate you on how easy it is to be proactive and save for your future at the same time….

1)Obviously life insurance is good to have in case something unexpected happens to a loved one.  However, what other ways can it benefit me now?

The most important thing to remember about Life insurance is that it’s primary purpose is PROTECTION! If you are looking for an investment tool that will provide large gains for future use, there are much better “vehicles” out there for reaching those goals.

With that said, it can be used to supplement other investment strategies.  Depending on the product used, it can provide a very conservative and safe investment opportunity that, over time, may help provide a secondary source for emergency funds, income, loans, collateral, down payments, etc…  While at the same time having the added benefit of providing a tax free gift to your loved one(s) should the worst happen to you.

2) How does is life insurance similar to other savings plans and how does it compare?

Depending on the product used and the funding strategy adopted by the insured, Life insurance can be manipulated to operate much like a savings plan.  If funded correctly, the Cash Value that the insured has accumulated over time may serve as a supplemental income during their retirement years, as well as still providing a benefit to their loved one(s).

3) Explain the difference in specific policies: term vs. whole, etc…

The simplest way to explain the difference between term vs. whole would be as follows:

Term vs Whole = Renting vs Owning

With most Term products it’s like renting a home. You pay the rent each month, but you build zero equity.  The same goes for Term…you pay your premiums, but you accumulate zero Cash Value in the policy.  And just as if you decided to move out of the home, once the Lease (Term) is up or cancelled you have nothing to show for it  (There are some Term products that offer a Return of Premium rider, which allow you receive the accumulated premium at expiration or cancellation of the policy).  The trade off is that the Term product is less expensive than a Whole Life product.

With Whole Life it’s like owning the home. As long as you don’t default on your payments, the policy remains in force for life (or to maturity).  It also has the added benefit of accumulating a Cash Value within the policy (you are building equity).

There is also what is called a Universal Life product (Very popular). This is somewhat of a hybrid of the two fore mentioned categories.  It doesn’t provide the guaranteed premium rate that the Whole Life and Term do, but it is much more flexible.  As long as you fund the product properly in the beginning of the policy’s life, you can then begin to adjust your payments as you see fit.  It is much like a Whole Life policy in the respect that it grows in Cash Value, BUT if not funded properly could lapse.

4) What are the steps to get a life insurance policy?

The first step is the realization of the important role life insurance can play in you and your family’s lives.  Contact a professional and start a dialog to determine what your needs may be.  What is it that you’re protecting your loved one(s) from and providing for them upon your death? Debts (mortgage payments, car payments, etc..), income, child care, education, taxes are all things that your family will have to bare once you’re gone.  The most important step is to begin the process.  After you have determined you needs, you and your agent will decide on a product that most fits you.  From there you will complete an application with your agent and he will send in the request for insurance.  Usually you will be required to do a quick physical (15 mins), which will be ordered for you and completed at a time and place of your choosing (ie. Your home, office, wherever is comfortable).  Once completed, your information is then submitted to underwriting for approval.

5) I am having to watch my expenses lately, how affordable is life insurance?

Your rates depend on multiple variables; Age, health (history), occupation, family health history.  The most significant is your AGE.

LIFE INSURANCE IS NEVER CHEAPER THAN TODAY!  Every day you get older the cost goes up.

If money is tight, it would probably be best to go with a Term policy.  It is the least expensive and most can be converted to a Whole or UL product during the term of the policy.  Also, you do not have to go through underwriting during the conversion.  Therefore, you lock in a life insurance policy, that you may not be able to receive in you later years.

For more information contact Kevin Joyce: kjoyce@iaafl.com or Ryan Joyce: rjoyce@iaafl.com or visit Insurance Affiliates for more information.