Life Insurance Essentials As Told By An Actual Agent
Life insurance is a frequent topic here at Hometown Quotes because it’s so important that you get the coverage you need when you’re young and healthy. That proverbial foot in the door, even when you don’t have a clearcut beneficiary, can be invaluable when it comes to later in life after you’re married, in a relationship, or parenting. Allstate agent Matt Elwood recently spoke at length about these issues in a Q&A session via the company blog.
During the brief discussion, Elwood helped to clear up some misconceptions about this essential insurance product. Here’s a brief look into the mind of an agent.
On Term Vs. Permanent
For Elwood, there are two basic types of life insurance — term and permanent, with term insurance being the simplest and most affordable, providing a death benefit for anywhere from 10-30 years. “You choose the amount of policy coverage. Premiums are level for the length of the policy, which means they are guaranteed not to increase (and would only go down if you decrease the amount of insurance at some point). Your beneficiary receives a lump-sum payment if you die before the term is over and if the policy is in force.”
As for permanent life insurance, Elwood notes that it is “typically higher than term insurance, but that is because you are also accumulating cash value in your policy.”
“That cash value gives you options and can be used for financial emergencies,” he adds. “The cash value grows tax-deferred and can be accessed through loans or withdrawals, subject to policy terms. Loans and withdrawals will reduce the cash value and death benefit.”
Elwood continued: “People often compare the two to renting versus owning a home. Most term policies have a conversion feature that allows you to convert to permanent insurance within a certain time period without another medical exam.”
On Protecting Your Family
Life insurance helps the entire surviving family whenever a breadwinner or a stay-at-home parent are killed in an accident or due to most diseases and crime. It allows the family “to maintain their standard of living by providing income-tax-free money to pay for funeral expenses, pay off the mortgage, set aside college tuition for the kids and just provide financial peace of mind during the loss of a loved one,” Elwood says, adding that “The majority of the people I help with life insurance are moms and dads who want to make sure their family is taken care of should something happen to them.”
While some may feel life insurance is not affordable for those on a tight budget, Elwood believes the opposite. “The misconception about the price of life insurance is the main reason many people opt out,” he says. “Consumers think life insurance costs nearly three times the actual price, according to a report by the nonprofit Life Happens.”
The study Elwood is referring to asked respondents to estimate the annual cost of a 20-year, $250,000, level-term life policy for a healthy 30-year old consumer. Americans estimated $400 a year, but the actual cost is roughly $150, according to the report. (That’s $12.50 per month compared to the $33 per month most Americans thought.)
Elwood adds: “Term life insurance premiums can be as low as $15 per month. Premiums depend on many factors, including your age and health, so it is better to look into life insurance now rather than waiting until you are older. Also, I advise my customers that something is better than nothing. You can start with a policy that fits your budget now and look at possibly adding more coverage later, assuming you can still qualify. If you’re in your early 30s and starting a family, life insurance should be one of your top priorities. Premiums only go up as you age, so it’s better to lock in a policy now, while you’re still young and healthy.”
And he also notes that you should keep in mind the average cost of raising a child: more than $200,000 per year. Multiply that times the number of kids you have, if you’re having trouble selecting a coverage limit.
On Adjusting Life Insurance Plans
Plans can be added to or scaled back based on your needs. “This is why an annual review, where you sit down with an agent to be sure your current plan still fits your needs, is an integral part of having life insurance,” he says. “There may be details in your life that have changed, which may make you want to reevaluate your plan. Some life changes include having children or change in marital status. It’s easier to scale back than to increase your plan, but both are possible. An increase will just require a medical exam.”
Lastly, On Coverage Limits
Elwood touched on this with his average cost of raising a child comment, but he also notes that there may be some other needs worth considering.
And while some may say that you should purchase 10 times your income, in his opinion, “it’s based on a needs analysis.”
“The main question you need to answer is, if you were to die, how much of your mortgage, kid’s college tuition and replacement of your income would you like to provide to your family and for how long? Sit down with an agent to talk about your specific household needs and find a plan that fits your current budget and needs.”
The importance of life insurance cannot be overemphasized. If you are wondering how you’re going to take care of your family on limited income, either policy — term or permanent — can provide the protection and peace of mind you need.