September was Life Insurance Awareness Month. You may be wondering, “What did that mean?” Well, let me ask you a couple of questions. Did your insurance agent contact you to review your current insurance policy’s features? Did you review your policies for the proper coverage to see if they still meet your family’s needs? If you do not have insurance, did you consider or research buying life insurance? Do you have enough, not enough, or none?
Awareness is the state of knowing something or having the understanding thereof. The focus is to encourage Americans to get the proper life insurance that they need. The Coronavirus Pandemic of 2020 has shown that life is very fragile and that “Go Fund Me” has become the life insurance for a lot of people. A survey by insurance industry trade group Life Insurance Marketing and Research Association (LIMRA) found in the Summer of 2020 that nearly 6 in 10 Americans (58%) say they have a heightened awareness about the importance of life insurance, and about 3 out of 10 (32%) who were shopping for life insurance said it was in response to COVID-19. According to a 2020 LIMRA study, only 54% of Americans have life insurance, and 27% have group life insurance through their work that is not portable.
Many people buy life insurance and forget about it. They tend to not read every page of their insurance policy and their agent may fail to proactively review the coverage periodically for life changes to determine if the existing coverage need to be upgraded or is performing as purchased. Does the person have life insurance external to their employment? If not, you could find yourself paying for insurance throughout your employment to not have any insurance upon retirement or termination.
Our lives are very dynamic and change constantly due to marriages, divorces, births of children or grandchildren, income, inheritances, and/or death. These are all factors that require annual policy reviews to determine if the amount of life insurance that a person has is sufficient.
Insurance is evolving and there may be a good chance that a policy purchased five or ten years ago may no longer provide adequate protection. An important question is: Are the current beneficiary designations still relevant since the policy was purchased? Do you need to update it?
If you do not know how to determine the correct amount of insurance coverage needed for yourself or your family, you may use an insurance calculator found at www.bankrate.com or the simple formula known as DIME. DIME stands for Debt, Income, Mortgage, and Education.
When one leaves this world, it should be their desire to pay off their debt, mortgage, or any liabilities as applicable; replace their income for 5 to 10 years to provide for their family especially if you are the breadwinner; and to provide a 4-year college education for each child. The income replacement provides sufficient resources for the surviving family members to continue to live life with minimal disruption and to change the financial landscape for the future. Insurance can be a legacy building instrument if you purchase the right type of insurance and use it properly. Yes, there are insurance that you can use while you are alive!
The two most known types of insurance are Term and Permanent with the most popular or favorable type being Term. The number of term policies increased 10% in the third quarter of 2020 compared with a year earlier. It is my opinion that this current trend is because a term policy is inexpensive and can provide coverage on a budget. For example, a 30-year term insurance policy for $300,000.00 may costs approximately $50.00 per month. Buy Term
insurance if you are on a budget and need affordable short-term coverage. The downside to a term policy is that it pays upon your death only. There are no living benefits, savings component, or long-term care options. Have you ever thought about why you pay for something that could only be used after you die instead of while you are alive?
Well, there is a product, and it is called Permanent insurance. What is Permanent insurance? It is widely known as Whole Life. As its name implies, whole life insurance provides coverage for your entire life, not for a term period. It costs more than a term life policy, but the premiums are fixed and allow for a guaranteed cash savings component. It is critical for policy owners of permanent life insurance to review the policy’s performance annually. Living benefits can be included in a whole life policy to provide coverage during a terminal illness. There are other permanent policies that could be used while you are alive for long term care, critical illness, supplement of retirement income, or for college education. Did you know that life insurance can be used for tax planning also? I will write about Internal Revenue Code 7702 soon to teach you how to use insurance for tax free planning.
Life Insurance Awareness Month is the time to have the conversation with family and an insurance agent about existing coverage, the amount of coverage, type of coverage, the need for coverage, and the amount of premiums. The age, smoker status, and rate class are the three factors that determine the premium amount. These three factors can and do change over time.
Unfortunately, as age increases so does the premiums. However, people who were smokers and are not anymore can apply for a smoker change on permanent policies or can be underwritten for a new term policy. If you lose weight, lower your blood pressure, and cholesterol, you can re- apply for an improved rate class. Even people who were issued at substandard rates due to a more serious medical issue can possibly obtain a better rating. Smoker status and rate class improvements can result in lower premiums.
Buying an insurance policy without understanding its features can potentially create a situation where coverage is no longer meeting a family’s needs. It is not something that you can put away and forget about it. You must be always aware of your protection as it protects you against loss of assets. Remember that life insurance is not about your life as you would be dead, but it is about making sure that your family’s life is disrupted minimally, and they can continue your legacy.
If you did not speak with an insurance agent in September, contact a licensed financial professional to review your current coverage, to learn more about the types of life insurance available, or to calculate the adequate protection for you and your family. Make a smart money move and schedule an appointment with me today at dalycynthia@canfinancial.biz.