When it comes to life insurance, there are some common misconceptions: Many people think that life insurance is too expensive or won’t pay out. Matt Elwood, an Allstate Personal Financial Representative based in Port Angeles, Wash., offers his expertise on these concerns and more. Here’s his take on life insurance, in simple terms.
There are two basic types of life insurance, term and permanent. Term insurance is the simplest and most affordable. It provides a death benefit for a set period of time, 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.
Permanent life insurance is designed to last your entire lifetime, assuming all required payments are made. Premiums are 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. 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.
“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.”
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.
Life insurance can help to protect your family when they suffer the loss of a breadwinner or stay-at-home parent. Life insurance allows the family to help 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.
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.
It absolutely can. The misconception about the price of life insurance is the main reason many people opt out. Consumers think life insurance costs nearly three times the actual price, according to a report by the nonprofit Life Happens.
When respondents were asked 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.
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.
With the average cost to raise a child well over $200,000, taking the steps now to secure your family’s financial future will give you confidence knowing your family will be taken care of if you are no longer there.
Your life insurance plan can always change. You can add more to your plan or scale 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. 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.
Some will say that you should purchase 10 times your income, but in my 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.
Allstate Agent Matt Elwood is based in Port Angeles, Wash. Address: 707 E. Front St., Port Angeles, WA, 98362. Phone: (360) 452-9200
Recommended by the Editors:
Loans or partial withdrawals can reduce the policy’s cashvalue and death benefit, can increase thepossibility of policy lapse,and may result in a tax liability.Consult a tax advisor for additional information on thetax treatment of loans orwithdrawals from alife insurance policy.