Marc Cuniberti When does life insurance make sense and what type of insurance might one consider?
Owning an insurance agency, I often get asked these questions.
I have always said there is a time to own an asset and a time not to.
For example, at my current tender age of 67, life insurance is not on the list of things I must do. I have garnered enough retirement savings to see the family through should something happen to me.
When I was younger, however, and with a spouse and starting a family, I was the sole breadwinner. We owned a house and some rentals and therefore had financial obligations to a variety of lenders.
We were never over-encumbered and kept balances to a minimum, but with these obligations, should something happen to me, the wife could be in dire straits. She would likely have to start liquidating assets to pay off the debt and with the stress of a passing spouse, dealing with something like that would be a nightmare.
At that time, I elected to buy a “Term” insurance policy. Term policies basically insure you for a set amount of time, and if you don’t die within the term selected, the funds you paid are gone. The longer the term you elect to be insured, the higher the premiums will be.
As with most insurance policies, your lifestyle, health, body type, and employment may all have an effect on how much you will pay in premiums.
The term is cheap, versus what they call Whole life policies, as the insurance company is off the hook should you live through the term. Whole life, as its name implies, can protect your heirs essentially for as long as you live.
When I was 35 I took out a 15-year term policy and paid a grand or so a year and if I recall, the policy would pay out 100k should I meet my maker before I turned 50.
If I didn’t die, the money I paid in was gone and the policy expired. The term means exactly that. You are insured for a specific number of years and that’s it. When my term policy expired, we had by then earned enough money over the years and now had a nest egg and retirement accounts set up that would see my family through if something happened to me.
Since renewing the term at my older age caused the premium to jump substantially, and we now had savings to fall back on, I elected to forego another term policy.
For families just starting out, the term is more affordable when one is young and it can cover a family that perhaps has a sole income earner with a wife and children. Term insurance can also be supplemented with accident insurance which can help if the income earner is not killed but perhaps just injured and can’t work.
As one age, and savings are gathered, that, coupled with the higher rates of a term policy because of older age, might entice a family to switch to a simple life policy instead of a term policy.
Life policies can be written to cover the insured until death, and a smaller death benefit amount might be selected due to the savings and retirement accounts that may have grown to meaningful levels. The smaller coverage amounts will bring down the premiums making the whole life policy more affordable.
There are whole-life policies pushed as retirement vehicles where one can accumulate funds and cash them out later in life but still payout if you die before you elect the cash-out option.
These types of life policies can pay larger commissions to the agents than term policies so they may be more aggressively marketed. For this reason, look carefully at what you’re considering and make sure you understand exactly what it is you are buying and all the immediate and long-term costs that are involved.
One last thing to consider is that when you buy a Whole Life insurance policy, let’s say for $500,000.00, the insurance company is going to pay someone $500,000.00 at some point, unlike Term insurance which may mean the insurance company will not have to pay if you survive the term.
For this reason, expect to pay more for a policy that covers you for life versus a Term policy that does not.
Life insurance may have specific tax advantages versus other investments so consult your tax advisor on all tax questions.
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This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. that can be contacted at (530)559-1214. Marc was voted best financial advisor in the county 2021. Email: [email protected]
