Get a life – Insurance, that is
October 4, 2016 by Valerie Vinyard, Special to The Explorer
Though mortality remains alive and well, fewer U.S. residents own life insurance policies nowadays.
With September being Life Insurance Awareness Month, AAA Insurance experts want consumers to know it’s never too early to start planning.
“Life insurance tends to be one of the areas that consumers put off or ignore,” said Brad Oltmans, vice president of insurance for AAA Arizona. “However, as a full-service insurance agency, AAA urges consumers to consider one of these policies sooner rather than later.”
In 2015, 30 percent of Americans know they need more life insurance, which equals more than 70 million people, according to LIMRA, a think tank and international learning center for insurance companies.
Sixty-five percent of Americans say they won’t buy because they believe it’s too expensive. In fact, LIMRA found that many consumers estimate the cost of life insurance to be twice as high as the actual price.
There are two main types of life insurance. Term insurance is bought for a set number of years. If the policyholder outlives the term, there is no benefit. The exception to that is if a ROP (return of premium) rider is added to the policy. That will return all of the client’s money at the end of the original term if he is still living. Obviously, the yearly premiums are higher than traditional term.
Whole life or universal life both are permanent policies that have set rates, set benefits and are good until age 121. Not only do these policies provide a tax-free death benefit upon the policyholder’s death, but while you are living, it builds interest, building a cash value in the policy that could be withdrawn or used in later years.
According to AAA insurance experts, the key is to not wait to invest in life insurance. The younger – and healthier – you are, the lower your rates will be. And the process of obtaining life insurance doesn’t happen overnight. Besides the paperwork, a health check often is required.
Here are three common life insurance myths:
Life insurance isn’t affordable: Of the consumers who believe they need life insurance, 86 percent haven’t bought it because they think it is too expensive, according to LIMRA. That’s not true. For example, a 40-year-old female can buy a $250,000 term life policy for less than $20 a month.
The proceeds from a life insurance policy are taxed: They are not. “Even though you can’t replace a loved one, a policy’s benefits can pay off debts, loans, mortgage or a college education,” Oltmans said.
When I retire or change jobs, my coverage automatically continues: Unfortunately, it doesn’t. When you’re covered through your work’s policy, it’s a term policy, and it doesn’t follow you to your next job or into retirement. Many companies will allow you to convert your term policy to a permanent policy, which Oltmans said will cost four to six times more. And pensions are not tied to life insurance.
“It’s important to determine a few things: why you want life insurance; how much you want to spend; and the percentage of your financial portfolio you want it to be,” Oltmans said. “Maybe you want to provide for your family, or perhaps you want to donate it to charity.
“Whatever you decide, you’ll never regret being prepared.”
Valerie Vinyard is a public affairs specialist for AAA Arizona. Contact her at vvinyard@arizona.aaa.com.
