Sep 26, 2019
“Life insurance? What for? I am still young and healthy!” Misconceptions like this are views or opinions that are not only incorrect, but based on faulty thinking. A misconception is a misinterpretation as well as an objection – one that screams out for more clarification from a knowledgeable and experienced licensed professional.
“It’s not available for older people.” “Only the breadwinner needs life insurance.” I have heard more of these than I care to remember. I’ve recalled the most common ones to share with you and provided some commentary too.
Getting to the heart of the matter
“It’s too expensive for me because I have health issues.” This is one the most common misconception regarding life insurance. “Why do you say ‘too expensive’?” I always ask. “Have you had an experience in the past or done comparative research?” Most times, they say no. Surprisingly, depending on the particular health issues they’re talking about, cost may not be a problem for them at all.
“Life insurance is too confusing.” It doesn’t have to be. There are two kinds of life insurance: term and permanent. Term is like renting an apartment. There is no equity but you have a roof over your head. Permanent insurance is like owning a home. You build equity and can have it forever, which makes it more expensive.
“I should only buy permanent insurance.” Depending on your planning objectives it might make sense. Permanent insurance can build up cash value outside of your retirement plan. It can be another asset, a separate asset class, with whole life or universal life. Universal life has straight universal life, that’s current assumption based on an interest rate, and then there’s guaranteed universal life, variable universal life and index universal life.
“Shopping online is better for me.” People think it’s easier and more affordable to shop online. Obviously, when friends say shopping online is the way to go, they don’t have the same health issues as you do. Worse yet, they might not understand the online carrier might not be one most people have ever heard of and not a good carrier for the underwriting they need.
A 2015 report revealed that 80 percent of Americans overestimated the cost of life insurance. An estimated $250,000 term policy for a 30-year-old might cost $1,000 a year online whereas a local agent or advisor might quote it at $200.
As a consumer, you must know if a carrier is financially sound and be able to pay their claims. An independent agent or advisor has access to lots of carriers and understands the market. They know how to shop the market. They know that Company A may have better underwriting, and Company B is more conservative but tougher than Company A on underwriting certain health issues.
Living longer brings about change
A huge undertaking is happening. Beginning Jan. 1, 2020, all life insurance policies issued will need to use the new 2017 Commissioners Standard Ordinary (CSO) Table, a new mortality table used in product pricing, and Principle-Based Reserving (PBR), a new way of calculating reserves to pay future claims. New mortality table requirements will result in premiums and policy values being more reflective of increasing life expectancy.
Online insurance must follow suit and have the same reserving requirements. The difference is online, people don’t know what they’re comparing, nor do they understand that they might be comparing a Preferred Best non-medical factor rating class versus a rating class that we, or someone else, may be quoting as Standard.
At Hefren-Tillotson, we don’t push the cheapest quotes; we want quality. We’ll only go to term, for example, if it is the right fit for the client, and if we do it is because term is both affordable and better for the client to have a mix of term and permanent. With insurance, the younger you are, the better the price. When you’re healthy you lock in insurability.
Nevertheless, whatever you purchase, you want to have it reviewed. If it’s permanent coverage based upon interest rates, you’ll want to ensure it is performing up to specifications at least every couple of years and also determine if it is adequate and for the duration you need.
Permanent means ... permanent
My father was notified that his life insurance coverage was increasing to $8,000 a year. I told him to call the carrier to find out and also verify if the premium is monthly, annually, and “fixed,” meaning it won’t change. It turned out to be monthly.
Unfortunately, the premium on his 10-year term policy will increase annually due to the level payment period expiring. “Now I won’t have any insurance,” he said. “I can’t pay that much per month! I’ll need to get more life insurance coverage.” Actually,
Dad doesn’t need as much coverage as he had before because he needs have changed and he still has permanent coverage, which is why I suggest it is a good idea to have a mix of term and permanent insurance. It’s both flexible and cost-effective.
Talk with us at Hefren-Tillotson. We are experienced and licensed insurance professionals who will determine what’s best for you based on your situation. Sometimes after I do an analysis for clients, I find some people don’t need insurance at all, and others who want it for planning purposes and peace of mind.
DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.