When we deal with a family on their insurance program, we are often asked the amount of life insurance they should carry. Although financial experts suggest 7-10 times annual income, the amount is more a personal decision. A young family with a home mortgage, credit card debt and children to rise has a huge need for dollars should the breadwinner die. When a loved one dies, the family expenses are only reduced by about 10-15 percent; however the loss of their paycheck could reduce the income by 50 percent or more. Term life insurance provides the most coverage for the money in early years.
For many in mid-life their life insurance needs may stabilize or reduce. The number of years left on the mortgage, and time until the children are out of the household, has decreased. Income has usually increased, as has savings. It is at this time that many change their insurance from low-cost term to permanent life insurance. Although more expensive, this coverage is designed to go to your last day.
Life insurance can be looked at like any other asset, however one that you will not pay full price for. Let me explain with an example. A few years ago we had a couple that purchased a $1,000,000 life insurance policy. The man was in his mid-60s and was rated up because of his health. The cost of the policy was about $1,200 monthly. After about a year, the customer was upset with this higher rate and petitioned for a reduction.
A new physical, paid for by the insurance company, concluded there was no improvement in his health and denied the request. The customer threatened to cancel but kept the policy in force. About six months ago the customer died and the wife was paid the full proceeds of the policy.
In three years they had paid about $42,000. Even had this customer lived to age 90, the premium paid would only be about 1/3 of the pay-out to the beneficiary.
As a young agent I was told a story that I have never forgotten. A man was travelling through the desert to a new land. Conditions were terrible and his survival was questionable. A prophet approached and instructed the man to gather rocks and carry them on the journey. He said that "You will be glad and sorry when you reach your destination." In the new land the rocks were gold. He was glad for what he had taken, and sorry he didn't take more. The story I was told. the rocks were life insurance. When a person takes their last breath, they can be glad in what they provide their loved ones but sorry it wasn't more. Tell me about family and friends that were affected by the life insurance, or lack of it, at a loved one's death.
Kevin Schuman is a senior Allstate agent. He can be contacted at 239-945-8888 or toll free at 800-356-2153.