Seven Things You Must Know About Life Insurance
1. Why does someone buy life insurance? You buy life insurance to help provide food, shelter and clothing for your family. If you are the main source of income for the family, you need to provide for them in the event you are not there to do it. I see way too many people AFTER a spouse has died who did NOT have much life insurance. One morning not long ago a friend of mine who had bought $250,000 of life insurance from me was at the dump with his wife throwing out some trash. He had a massive heart attack and died right on the spot. The money that was left helped his wife continue to have money for expenses and to replace his income. I could tell you many more examples of how life insurance has helped families after the death of a loved one.
2. What is “term” life insurance? Term insurance is basic protection which pays your beneficiary if it is in force when you die. When I first started selling life insurance in 1976, we only had yearly renewable life insurance, decreasing term and five year level. With yearly renewable, the death benefit stayed the same; rates when up each year. Decreasing term was purchased most often by people who had a home mortgage with the idea that as the mortgage decreased, the protection decreased. Today, rates for term insurance can be locked in for 10, 15, 20, and even 30 years in which the death benefit stays the same; but, at the end of the term you either do not have insurance or you have to buy more life insurance.
3. What is “Universal Life”? These products became popular in the 80’s when interest rates were very high. I have a real copy of a Trust Company ad in which the interest rate for a $10,000 six month CD was 15.925! A Universal Life policy is what we call an “unbundled” life product. You pay a premium, and the money goes towards expenses and mortality costs. Whatever is left over goes into an account that draws interest. These policies are still available and many offer a guarantee not to lapse until age 121! If you have and old one of these policies, you need to check to make sure there is enough money going in to keep it from “running out of money” before you die and there is no money left for a death benefit.
4. What about “whole life”? This is the oldest of all life insurance plans. The premiums are higher than term, but they are designed to last your “whole life” and be there when you die. Insurance companies have actuaries who figure out how many people in large groups will die at a certain age, and develop mortality tables. When you pay a premium to a whole life policy the premiums build up a “cash value” reserve that mathematically keeps your premiums level for your entire life. <
5. How do I know “how much” life insurance to buy? Now, this is the big question people have asked me for years. I have sold people over the years a $100,000 of life insurance and they thought it was too much; others, $500,000 and they did not think it was enough. Insurance companies used to do a thing called “programming”. Don’t laugh, but we had to fill out a confidential questions form and mail it to the insurance company (Boston MA). In about two weeks you would get a print-out showing how much you would need to have in life insurance to protect your family based on your answers. Now, you can do this in just an hour or less. I recommend that people they have enough life insurance to help pay off final expenses, provide some income, and cover the house mortgage. Any professional life insurance agent can be very helpful on helping you come up with a plan for how much you need.
6. Which “kind” of life insurance do I need to buy? Young people who have large home mortgages and other obligations need to consider term insurance because it provides the maximum amount of coverage for the least amount of premium. It is far more important in the younger years to provide money for the family in case of a death of the bread winner. The sale of universal life is also popular and sometimes if the budget permits we can do a combination of term and whole or universal life. The benefit of the universal or whole life is that if you keep it in force for your entire life. I have had far too many widows in their late 50’s or 60’s come here with no money to cover debts and help with expenses because their spouse did not leave them enough money.
7. Do I really need to talk to an agent that sells life insurance? Why not just buy it on the internet and save money? Nothing wrong with buying your life insurance on the internet, but the price you pay for life insurance is fixed by the insurance companies. Hence, the premium you are quoted on line is the same thing you can buy from a knowable insurance agent. Plus the agent may just come up with some ideas that really help you in the long run.