Life insurance isn’t something that’s on the forefront of many people’s minds, but it’s never too early to start planning. September is Life Insurance Awareness Month, which serves as a good reminder time to consider this coverage.
It’s a type of insurance that’s easy to put off, but by the time people want to buy a policy, it could be priced out of their budget.
Almost one-third of U.S. households (35 million) in 2010 didn’t have any life insurance, according to a study by LIMRA, a think tank and international learning center for insurance companies. And half of U.S. households (58 million) said they don’t have adequate coverage.
The two main types of life insurance policies — permanent and term — differ quite a bit.
Whole life policies, a type of permanent policy, are the ones you see advertised on television. Consumers usually purchase policies of $100,000 or less, often lower than term and universal term policies.
For a lower cost insurance that lasts up to 30 years, term might be the way to go. It’s the simplest, least-expensive option. But term has its drawbacks. Say you buy a 30-year term and outlive it. Because it’s basically renting insurance, your policy ends when the term is finished.
If you want something permanent, more expensive universal term insurance is an option. With this type of policy, your money is being invested and will be returned to you — with interest — if you outlive the policy. Many of these policies are made for $100,000 to $1 million or more.
No matter the option you choose, life insurance isn’t a quick purchase. Expect the process to take 30 to 40 days so the insurer can get a well-rounded picture of you and your life.
Insurers will quiz you on hobbies, your job, your net income and your beneficiaries. Besides your age, health history and their own “paramedic check,” adjusters weigh in on a host of other variables. Family health histories are explored, as well as lifestyles and careers.
Consumers typically have a variety of questions about life insurance. Here are answers to the most common ones:
• What if you lie? It’s difficult to get away with it. For example, you cannot hide tobacco use in your blood tests, so just be as up-front as possible.
• I already have life insurance through my job. Should I get more? While large companies usually have some type of group life insurance, those policies only follow the employee while he works there. If your company does offer it, consider increasing it. Many times, you can do so for only a few dollars out of each paycheck.
• What if my life insurance company goes under? Each state operates an insurance Guaranty Association, which is equivalent to the insurance industry’s FDIC. Should an insurance company fail, Arizona residents who carry a policy from a company that’s licensed to practice life insurance in the state are guaranteed up to $300,000 per policy by the Arizona Life and Disability Insurance Guaranty Fund.
• How much life insurance do I need? While everyone’s situation is different, 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. Maybe you want to provide for your family, or perhaps you want to donate it to charity.
• John Candaso is an Ahwatukee resident and licensed insurance sales agent with AAA Arizona. He can be reached at email@example.com.