Prep now for what’s ahead

Those who turn 40 often start thinking about their own mortality.

No one wants to admit they could die prematurely, but the last thing anyone wants is to be unprepared should disaster strike. Having the proper life insurance policy in place can provide peace of mind.

“Everyone who has a loved one should buy life insurance,” Katrina Robinson, State Farm Agent, said. “We can’t foresee the future, but we do know that unexpected things happen, including premature death.”

While there is a variety of options, life insurance basically comes in two forms. “State Farm offers two types of life products: term life insurance, which is generally a specified amount for a specified number of years at a specified price, and whole life insurance, which is permanent insurance with a constant price, which generally builds cash value and purchases paid up additions,” Robinson said.

With term life insurance, clients choose a fixed premium they will pay monthly, quarterly or even annually. The policy will cover them and their family for a set amount of time and for a set amount of money, and it only provides death benefits. Coverage periods are often 10, 20 or 30 years and start at around $100,000 worth of coverage. Another factor to consider is that no matter how large the death benefit, it passes to the beneficiaries income taxfree.

The difference with whole life insurance is that it is a lifelong policy with an added investment component to it, and policyholders can actually build up cash tax-free.

Since the policy has a cash value, they can also borrow money against it and access the cash value while still living. As long as the premiums are paid up, whole life insurance offers protection for as long as the client lives. However, whole life insurance premiums are significantly higher than term life and often include built-in fees and commissions. There are also hefty surrender charges in the event that the policyholder ever cancels the policy.

While Robinson recommends carefully considering what clients can afford before making a decision, life insurance is something that is within grasp for everyone.

“There is a plan to fit pretty much every budget,” Robinson said. “The best buying practice is to make sure your purchase fits your budget.”

So how does someone find out how much life insurance they really need? Robinson has a suggestion. “A needs analysis is a great tool to use in determining how much life insurance is needed. This needs analysis takes a detailed look into your outstanding debt, income replacement and your desire to leave a legacy behind for your family.”

The first part of the needs analysis will determine how much money would be needed at the time of death to meet immediate financial obligations. These would include final expenses such as a funeral and unpaid medical bills and outstanding debts such as a mortgage balance or unpaid student loans.

The second part will look at how much future income would be needed to sustain the household. Those who are married will want to consider the amount of cash that is needed each month to cover things like rent, utilities and credit card bills.

Those with children should also consider expenses including childcare and future college costs.

Finally, life insurance can be a great tool for leaving behind a financial legacy for the family, or even for a charitable organization. A needs analysis can help you determine what is most practical.

Most life insurance companies require a medical examination as part of the life insurance application process. “There are a few health questions that accompany every life application,” Robinson said.

“Depending on the type of policy you purchase and your medical background, a blood and urine sample may be required.

Yes, certain health conditions may cause premiums to be increased.” Exams are conducted by medical professionals, and the life insurance provider pays for the medical exam; there is no cost to the client. It is never too early nor too late to buy a policy; purchases can be made as late as age 85.

“Life insurance is fundamental for creating a sound financial future for your loved ones.” Robinson said. “Because premature death can cause a financial burden and hardship on your loved ones, life insurance is one of the greatest ways to ensure that your future plans and dreams for your family can be carried out.”

– Kirk Fontenot