Having children, a mortgage, husband or wife, investment property or assets all warrant concern about how to protect the important things in your life in the event of your untimely death or injury. Whether these important issues are a current concern or may be in the future, the way to put your mind at ease is through life insurance. As a responsible adult, it is impossible to ignore the fact that you must purchase life insurance to protect your loved ones and your assets.
There are a variety of life insurance plans on the market to choose from. The types include term life insurance, whole life insurance, universal life insurance and variable life insurance. Where to begin? Let’s focus on term life insurance.
Term life insurance provides coverage at a fixed rate of payments for a limited period of time, what is referred to as the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
Term life insurance policies are based on the age and health condition of the client with the longest term being 30 years. Upon untimely death, the beneficiaries listed on the policy will receive an amount or full amount benefit of the policyholder. A lump sum, tax free, will be rewarded to the beneficiaries.
Term life insurance is a very popular choice for short-term asset protection. In the event of untimely death, policyholders should be confident that the policy will provide a stable financial environment to their loved ones. With that in mind, the term policy should first reflect at a minimum amount of 5 times your salary.
With all of this information, how does one choose among the hundreds of companies offering term life insurance? One of the most important factors is the company rating. Standard & Poors (S&P), an American financial services company, ranks life insurance entities. Companies with an “A” rating are labeled as the most financially solid. Once the company has been chosen, an application should be filled out and an agent will begin the underwriting process. This usually requires a medical exam including blood draws, urine analysis and a record of the patient’s medical history. Once submitted and approved, the policy will be sent back to the customer.
Let’s examine a real life scenario. A single female, age 42, a non-smoker with a salary of $60,000 per year with an additional $1,000 per month in child support has one child age 11 in private school at $20,000 a year. She has 12 years left on her 30-year mortgage with a balance of $302,000 and takes high blood pressure medication with no other health conditions.
The analysis will be as follows:
The client’s policy should reflect $160,000 for her child’s education until age 18, $302,000 to pay her mortgage in full. High blood pressure medications will usually cause a denial, however, she only takes one pill.
Based on the client’s expenses, she should acquire a minimum of $500,000 in life insurance. The cost of a 30-year term is approximately $63.44 and the cost of a 20-year term is approx $89.22.
The client’s beneficiary should be her child. However, her child is a minor, so the beneficiary should be a trusted individual or a close family member until her child is 18 years old. It is important to purchase as much term life insurance as possible. If this woman is eligible for the longer, 30-year term she should choose that plan.
In the next issue, World Bride Magazine will examine the benefits of whole, universal and variable life insurance.
Stacie Jones Upchurch is an independent insurance agent at The Jones Agency.