Life Insurance, The Essentials Interview

Life Insurance, The Essentials Interview

Life Insurance Essential Interview with Kissy Ariza, Life Insurance Rep.

I met with Kissy Ariza, a very personable and knowledgeable, high energy local NY area life insurance representative to ask some popular questions about getting life insurance.  Many folks already understand the importance of having life insurance of some kind, somewhere with some company.  Most of us even remember the “insurance man” who used to come around from time to time, and our parents bought whatever policies they could afford.   Not so much in our busy lives today.  Hence, there are a lot of misgivings and out right un-truths out there about insurance.  One thing however is for sure, a good ironclad policy is a key part of any good personal financial planning.

Kissy Ariza was able to dispel some common misconceptions, verify some known truths and even offer some serious take away information.  In this interview she gave some invaluable points that make it easy to understand why life insurance is such a big deal and necessary part of your finance arsenal.

-Miles.

Life Insurance, That’s an Investment Too.

Insurance to Ensure an Investment

Take a good hard look at your circumstances to try to match your coverage.
Take a good hard look at your circumstances to try to match your coverage.

For most folks life insurance in general is a good idea, however it helps to have an idea of the various types and the goal of each type.  Options vary widely and depending on any given set of individual circumstances, no two may be alike as it relates to needs, goals and the formula to balance the two.  Life insurance is considered in folklore as “a bet on your life that you hope to never win”.  And much like any good bet, many things are taken into consideration that may hedge or offset the bet by increasing or decreasing the likelihood of something occurring.  The insurance carrier goes to great lengths in figuring out this “likelihood”.

Life Insurance, a.k.a. "A bet against your life"
Life Insurance, a.k.a.
“A bet against your life”

As it relates to life insurance in general it falls into two categories and then branches out in each of those categories from there, limited only to the imagination on the carrier.

The two categories are Term and Whole/Universal/Permanent

Term: Straight forward, this life insurance will cover you for a specific time period, let’s say 5, 10, 15 or 20 years. The premium (monthly cost) is fixed at a certain amount and is heavily based on  the benefit (payout).  Some other things that may affect the premium are age, medical history and occupation.  If you’re over 45, poor health history, smoker, and clean sky scraper windows for a living then your premiums are going to be higher than average.

Whole Life, Universal and Permanent:  These plans are intended to cover  you for your whole life, based on the time you get the plan your premiums will be set for life an typically you lock these costs in.  As long as you pay the premium you’re pretty much locked in.  There are many various options relative to upgrading your insurance by increasing it, backups to ensure premiums are paid in case you can’t pay it due to illness or injury, ability to build cash value, take loans and so on.

Term is by far the most popular and most aggressively marketed, although the majority of people want Whole Life insurance to cover them form the rest of their life.  Term is profitable and you had better believe the number crunching insurance industry has figured that out, that is what they do.  However, that doesn’t necessarily mean a bad deal for the insured.  It does mean that the public should take the time to figure out their needs more accurately when facing all sorts of appealing term rates that far outweigh rates for all other types in most cases.

Term Insurance covers the specified time and that's it. You usually can renew sometime ahead of the expiration.
Term Insurance covers the specified time and that’s it. You usually can renew sometime ahead of the expiration.

Considering your needs:  Ask the yourself a few honest questions:

  • #1 Why do you need insurance? Surprisingly, not everyone needs insurance.  Identifying why will go a long way in getting the right and affordable coverage. To replace income? To compliment other insurance? For liabilities after you may pass on? Or to set you kkids up for a windfall in case [of your untimely death?
  • What exactly is the insurance for, to do what specifically? There should be a specific calculated purpose. For example: to pay off the house and other major liabilities and not leave your family to pay it off or risk losing it, ensure tuition for child’s education, ensure you can continue to pay anything you wanted to keep paying although you have passed on or just to cover burial expenses.
  • Who is the insurance set to benefit?  Spouse, children, extended family, close friends, colleagues, business partners. You definitely have to name a beneficiary, however, you can change and update this as often as you’d think necessary.
  • How much coverage will you need?  This ties into the “What” above, figure that out and make adjustments accordingly.
  • When should you be covered?  Term can do for a lot of people if the focus is to cover certain liabilities while you have the responsibility.  How long will the children be “children”, when will you not have the mortgage note or loans to be concerned with anymore? If you can figure that out you can figure how long of a term you may need and build a strategy around that

And because this blog is about simple personal finance based on real everyday life, how we really manage our financial lives I want it be clear -I’m not selling life insurance.  I’m pushing the idea that you may need it.  Considering that,I think the first thing that comes up if can you afford it.  It’s an all important question:::: How much can of a premium can you afford -for the entire policy period no matter what??  That is one of the number one things that have people fall out of very good plans.  Many folk don’t have life insurance for two major reasons: #1 They just aren’t sure they can afford it. #2 They don’t understand the product enough to make the best decision.  Both reasons lead to all sorts of problems, whether you get insured or not.

Avoid common pitfalls:

  •   Buying when they are in very stable but less than normal situations, but NOT planning on how they’ll pay in difficult times.  When times are tough for whatever reason, life insurance often gets cut.  This is same mistake folks make when buying a new car, buying what the can afford in the moment but not based on their typical budget.  Avoiding making this decision with a pushy sales rep or with the beneficiaries around, or right after a family member or someone close has passed on can help keep the emotions down and let you make decent decisions.
  • Buying wayyyy too much coverage.  Using insurance to compensate for lack of current lifestyle for your children or loved ones might not be the best idea. Buying $500,000.00 and Million dollar policies, might not make the best sense regardless how good they sound. High dollar policies can be not so great if they become at risk of being dropped because it becomes too expensive over the years.
  • Buying what you don’t understand: Whole Life and Term policies are simple and straight forward, outside of a few child riders (adding children to your policy) keep it simple.  Most options to policies are available to you after you sign and you have time to learn and optimize you policy by making it fit your needs better.
  • Buying from a not-so-reputable insurer.  While that may be hard to imagine, there are still many companies that don’t mean well and will underwrite a policy that they cannot cover.  There are regulatory government agencies that stay on the lookout for such companies, but they still exist.  It is recommended to buy from a well known insurer with a good reputation and not some mail advertisement or email solicitation.  It may cost you a little more in order to cost you less.
  • Not Buying at all.  Even if it is to get term insurance and further refine your needs  stated above, get some insurance if you think you may need it.  A worse mistake than those above is not being insured to take care of the people and things that are important to you, not leaving them burdened, even if it’s just for burial expenses.
  • Job/Employer Insurance.  Your employer may offer a decent amount of insurance for both you and your spouse with child riders available for very low cost based on your salary.  However, don’t let that make you complacent and put your guard down.  If you leave your job via separation, firing, lay-off or even voluntarily where will you get insurance?  If some time has passed you may be in another bracket due to age, health history or other reasons and need to qualify all over again, but now with higher premiums.  Even getting a low cost plan that you can convert later helps you to avoid this potential situation.
Return of Premium Policies offer you all or most of your premiums at the end of the term.
Return of Premium Policies offer you all or most of your premiums at the end of the term.

THE WHOLE POINT OF THE POST: RETURN ON PREMIUM INSURANCE.                                  Another not so mentioned type of Term Life Insurance Policy is the “Return of Premium”.  Let’s say you paid $30.00 a month for 10 years, and you could get back almost all of it, let’s say 85% of it is returned back to you, that’s ((30×12)*15)*.85= $4,590.00 you would receive at the end of the policy period paid back to you.  If you outlive the policy, you probably could use a drop in the pocket of $4,590 .  Not many insurance carriers offer this variation of the Term Policy, so you may have to shop around a bit.  Once you do find it, you’ll see its a bit more expensive than the regular Term policies and basically, it’s because you can set to have most of the premiums you pay for the Term contract policy to be paid back to you in one lump sum. Wait, What?? Yes, your read that right get all or most of your premium back if you outlive the term of the policy.  Just imagine how many people outlive their policy, only to renew.

The "New" Cash Back Program. Cash back on your insurance policy
The “New” Cash Back Program. Cash back on your insurance policy

Basically you’ve lost the bet and didn’t die (good for you in 99.9999% of situations).  With ROP (Return of Premium), you’re betting you’ll live and having the policy ass a safety net just in case you’re wrong (also good for you in 99.9999% of situations).  Check out Return of Premium basics for more details and go shop around for a insurance carriers that offer it to check out rates, I’m sure they’ll probably have some carriers advertising right there on their site. Unfortunately, I don’t have any to recommend, but trust me there are plenty out there.
I make no recommendations other than to get some “needs based” insurance regardless of your budget, and be careful of the traps that make you either procrastinate, waste time, or overdo it, watch out for pushy salespeople and get a good company.

Then there’s some of the actual “actionable” things to think about.
Who will be in charge of the affairs, you know, taking care of the business of contacting the funeral home and all of those details? Who will be the executor to close bank accounts, pay bills, do transfers and have power of attorney?   Who will get what and take care of what?
How much does the important things cost?  Burial- do you own a plot? You can pay for or start making payments for burial expenses upfront.  You can also just buy a plot upfront if you have an idea where you want to be buried.

Speaking of preparedness, a will is great, as a matter of fact it’s super great.  Write your will today if you don’t have one. Write whatever you want, however you want things to be. Sign it and then have it notarized and sign it again.   Depending on what state you live in you may have to do a little more for it to be bullet proof official, but trust and believe a signed and notarized will is pretty strong for most situations.  So many people think they don’t need a will because they don’t have tons of money, to that I say stop watching TV.  Put your wishes on paper, people won’t need to fight over what they “think” you would have wanted even if you can’t afford it to pay for it.  How do you want your accounts or affairs handled, your remains, down to your jewelry, your special sports equipment, prized tools, old car you thought would be an antique one day, your photo albums, clothing, stereo equipment and electronics, shoe collections, surely if you don’t monetary riches these sorts of things will have high value to you.  Should you be dressed in a suit or dress and if so choose a color?  All of these things will need to be decided and you can decide now.  Put it to paper, don’t worry, you can always update and make changes.