Most often it is a subject that has all of the elements of confusion and most people feel uncomfortable talking about it. SMA Services, Inc. can help you make the decision-making more comfortable.
Most people don’t purchase enough life insurance to cover their needs. We tend to see most people are actually under insured. For those that do, many end up making mistakes and buying insurance that does not fit their needs. We also recognize that people tend to put off buying life insurance for many reasons.
- It’s complicated.
- It’s boring.
- It can be expensive.
- It deals with a subject we don’t want to confront.
According to the Life Insurance and Market Research Association1, more than 30 million Generation X and Y households surveyed reported that they needed more life insurance in 2012. One-third of wives own no life insurance at all.
Of those who have had a positive experience with life insurance, 80 percent indicated that the life insurance industry plays a “critical role” after the death of a loved one.
The survey also revealed that Americans are confused about insurance. LIMRA found that the main reasons people don’t purchase life insurance is because they believe it’s too expensive and they have other financial priorities. However, the survey also showed that consumers seriously overestimate the cost of life insurance by as much as threefold.
Consumers also find insurance to be confusing. The confusion sets in when it comes to determining what type of insurance product they should purchase. 12 percent couldn’t decide what type of life insurance to purchase, 10 percent were concerned about making the wrong decision and 8 percent simply gave up because of a lack of knowledge about insurance.2
These ABCs might help you find your way:
1. Determine whether or not you need life insurance. Not everyone needs life insurance. If you are young and without dependents you may not need life insurance. If you plan on having children, it can be a good idea to buy insurance when you are young. By doing so, you guarantee your insurability.
Insurance premiums are determined by your age, gender and risk classification. You may no longer have a need for life insurance if you are older with no dependents and have low liabilities.
2. Determine how much life insurance you need. A Financial Needs Analysis is one of the best ways to determine how much life insurance you need. You also may just want to replace income in case of an untimely death. There are two ways you can calculate how much insurance you need:
Income replacement: This approach considers your age and income. Start with your age and determine how many years of income you would need to replace in the event of your death. For example, if you are 40 years old, you might decide to buy insurance that would pay 15 or 20 times your annual income.
Needs-based: This approach considers your individual situation and assesses the impact your death would have on your dependents. Factors to consider include whether your spouse or partner would continue or start to work, the number of children you have, whether there is a mortgage you want to pay off and the cost of educating your children, to name a few.
Our preference is for the financial needs analysis approach. It takes time to put together but we make sure you are on the right path.
3. Determine the type of insurance you need. The two basic types of insurance are term and permanent insurance. Permanent insurance may also be referred to as cash-value insurance.
Renting vs. Owning is a concept we like to use when comparing term insurance to permanent insurance. Term insurance is for a specified amount of time and does not build cash- value. You decide how much coverage you need and the period of time you want that coverage to remain in effect. Term insurance has a level premium over the term of the policy. Term insurance has lower premiums than cash-value insurance. By the end of the term, your need for insurance may be reduced, eliminated or you may need to continue coverage. In the case of continuing the coverage you are now older and your premiums are then based upon attained age.
Cash-value insurance can be confusing but it can also be an excellent product. This is the type of insurance that you own. There are three types of cash-value insurance, whole life, universal life and variable universal life. All three build cash-value and have guaranteed premiums and cash value. As long as you pay your premiums your policy will not lapse. We are here to help you and educate you to the different types of permanent insurance to best fit your needs.
At SMAS we believe we can be more than one thing to our members and clients. We partner with you across all aspects of your financial future. Our focus is to provide you with viable options that can help make your financial planning a success. We never lose sight of the fact that our job is to help you and that takes a team of dedicated, knowledgeable and resourceful people. Our service model guides you through the process. Partnership is what makes a difference.