ALLCHOICE Insurance :: Blog

There exists a great debate among so-called financial experts with respect to what type of life insurance policy is best.  One one hand, you have the camp that believes in the value of a properly funded “permanent” life insurance contract (i.e. whole life or universal life).  The other camp feels that you should purchase term insurance and invest the difference into some financial product.  Regardless of which camp you fall in to, the life insurance industry created a Term Life Insurance product which included a “rider” that allowed you to receive all of your premiums paid into a term life insurance product back at the end of that policies term.

Let’s assume that you go to your agent and needed to purchase life insurance.  After you and the agent completed a Life Insurance Review (hopefully), you determined that you needed an additional $200,000 worth of protection.  After looking at whole life & universal life, you determined those two options to be out of your budget.  You agent then showed you a Term product which was much cheaper.  However, you did not like the idea of paying for something, which if you did not die during the policy’s term would just vanish.  Your agent then showed you that you could amend that term product, for an additional premium, with a rider which would return every premium dollar you had paid into the policy should you not die during the policy’s term.  That is a win/win for everyone!

Well, if you like the idea of that “win/win” scenario, you better act fast.  The rules that regulate life insurance contracts are changing January 1st,  2010.  Actuarial Guideline 45 applies to individual life insurance products that offer endowment benefits prior to the expiration date of the life insurance coverage (most ROP products offer the clients a partial return of their premiums paid should the insured cancel the contract before the end of the Term).  The new rules make these Return of Premium products too costly for Life Insurance Carriers to profitably sell.

While many companies will continue to sell these Return of Premium Policies, they will have ot increase the cost of the actual rider.  This increase will, more than likely, cause many individuals to stay away from these products as the “cost / benefit”  analysis will be drastically reduced.  Further, many carriers are completely stopping the sell of their Return of Premium Policies.  Unfortunately, the real losers in this increased regulation (from the government) of the life insurance industry is the consumer.

About The Author:  Jack Wingate is the co-founder, and President of ALLCHOICE Insurance in Greensboro, NC.  For more information about Jack Wingate, ALLCHOICE Insurance, or Life Insurance please visit: http://www.allchoiceinsurance.com

Recently a business associate / friend was blessed with his first child.  I was fortunate enough to have daily discussions with him leading up to birth.  While I do not like to consider myself “old”, for the most part, most of my peer group have stopped having kids.  Hearing my friend talk about the good and bad times leading up to birth brought back memories.

The time leading up to the birth of your first child is both exhilarating and scary.  You are experiencing new things each and every day.  However, since this is the first time you have experienced such a monumental undertaking, you thoughts are inundated with thoughts and feelings of doubt.  “Will I be a good parent?”  “Will I provide for my family financially?” “How will I provide for my family?”  The list goes on and on.

The fact is, as a first time parent, you have a different set of responsibilities.  As a young person / couple the last thing in the world you would think about is the need for life insurance.  When a person is in his / her twenty’s, there is a feeling of immortality that exists.  However, there is one constant in this life, you are going to face death at some point in time.

Now, as a new parent, you are not only responsible for yourself, you are now responsible for making sure that new little bundle of joy has a future.  Given that we will all face death, and that the loss of your income due to premature death could cripple you new family, life insurance should be the first thing you purchase once that little one is born.  Of course, you are thinking that you now have diapers, formula, clothes, and many other things that will add to your expenses, and that the last thing you need is something else to take your money.

I now ask you to think about all the extra expenses you and your family are faced with given your new addition!  Would those expenses stop if you passed away?  Are those expenses going to decrease at any point during the first 16-20 years of that baby’s life?  I hope that you answered both of those questions with a resounding “NO”!  Take it from a father of three, the expenses never decrease.

Life Insurance is that “ounce of prevention” that can make the difference between little Johnny or Julie having the future you dream he/she could have, and a life filled without a parent and/or hope.  While having some life insurance is better than having no life insurance, please do not make the mistake of just buying a life insurance policy.  The key to building that foundation of hope for your child is having the correct life insurance policy.

The most important aspect when purchasing a life insurance policy is to buy the right amount.  While there are many online resources that will help you determine the amount of life insurance a person needs, the best thing for you to do is consult a Professional Advisor.  Now, there exists a stereotype with regard to life insurance salespeople.  Many people feel the these professionals are only concerned with selling you most expensive policy they can.  This may be true of some, this is not the norm.

A professional advisor should be concerned with providing you the right amount of protection at a cost that is affordable.  The best way for you to purchase life insurance is to determine the amount of money you can afford to pay, then build a life insurance plan that will fit your budget.  If your budget allows you to purchase the amount of coverage you need fully in permanent coverage then do so.  If you budget allows you to purchase the amount of coverage you need partially in permanent and partially in term then do so.  If your budget only allows you to purchase the amount of coverage you need in Term, you guessed it, then do so.

There are many types of plans, and some “TV Experts” will tell you how any plan other than Term is wrong, I will tell you that any time you can afford to purchase permanent insurance, you should.  Think of the difference between Term and Permanent Coverage in this regard, Renting vs. Owning.  However, when prompted to tell someone what the very best type of life insurance coverage is, the truth is simple.  The very best type of coverage a person can own, is the one that is in force at the time of death!

Being a new parent is exciting.  Being a new parent is scary.  Buying life insurance to protect your family’s future is easy!  Don’t procrastinate, call an advisor today.

About The Author:  Jack Wingate is a Professional Insurance Advisor and Founder of ALLCHOICE Insurance.  For more information about Jack Wingate, ALLCHOICE Insurance, or protecting your family’s future with a properly structured life insurance plan, visit http://www.allchoiceinsurance.com

Young families, ages 21 – 45, tend to have the greatest need for life insurance. Why? The answer is quite obvious to anyone who actually fits the definition of a “Young Family”. During the “young family” stage, couples are typically just starting in their respective career(s). Young families are also creating the family by having children. Young families are also dealing with a huge amount of debt (home, car, student loans, braces, etc.). While determining the amount of life insurance necessary may vary from advisor to advisor, there are “standard” calculation methodologies present. The problem comes when one of the parents does not “work” outside of the home.

While the “Stay At Home Mom” may be less prevalent than she was twenty years ago, there are still a large number moms who “work at home”. As a husband who is lucky enough to have a “Stay At Home Mom”, I know first hand how valuable the job my wife performs on a daily basis is (as a personal side note, I have the utmost respect for any person who chooses to stay at home versus working out the home, yours is a job that goes without thanks or acknowledgment far too often). The problem that must be dealt with is…how much is the “Stay At Home Mom” worth in terms of dollars and cents? The second (and often hardest to overcome) problem comes in convincing both the husband and wife that the “Stay At Home Mom” NEEDS life insurance. Let’s tackle each problem individually.

Problem One – How Much Life Insurance Does The Stay At Home Mom Need?

The fundamental problem with life insurance is determining the amount of coverage any individual needs RIGHT NOW! In determining the amount of life insurance someone needs, a Professional Life Insurance Advisor will do what is called a “Needs Analysis”. The Needs Analysis may differ among Advisors and/or Life Insurance Carriers, but the general items stay pretty consistent.

• Final Expenses (Funeral Costs, Burial Plot, etc.)
• Debt Payoff (credit cards, car loans, student loans, etc.)
• Mortgage Payoff (while some may debate this, most advisors use this)
• Adjustment Period (typically one years salary)
• Education Fund ((Private School costs until graduation when applicable and/or total college costs) X # of Children)
• Income Replacement (most people fail to go this far in the analysis, we will discuss this in more detail below)

While most of the needs analysis is pretty straight forward, the final component of Income Replacement tends to be the most overlooked and complicated part.  In determining the Income Replacement component, the Advisor attempts to compute how much money, today, it would take to replace the income lossed due to the death of the insured.  This computation can be difficult since the Advisor is trying to predict how much money that individual would have made over the course of his/her working career.  There is no way to get this portion 100% correct.  In the simplest form, the Advisor takes the amount of money the person is making today.  The Advisor then subtracts any “Passive Income” the family may have (think rental property) that would continue with or without the Insured.  Next the Advisor subtracts the annual income of the spouse.  Finally the Advisor and Insured must choose a conservative rate of return that a lump sum of money could earn today.  Let’s look at an example:

Peyton (our example insured) currently makes an annual salary of $50,000.  The family owns a rental house that makes $5,000 a year after expenses (mortgage, insurance, repairs).  Peyton’s spouse does not work outside of the house.  Peyton and the Life Insurance Advisor believe a conservative interest rate that can be earned in today’s environment is 4%.  Let’s look at our calculation!

$50,000 – $5,000 = $45,000

$45,000 / .04 (4%) = $1,125,000

Therefore, in order to replace Peyton’s Annual Income (less passive income) the family would need to place a lump sum in the amount of $1,125,000 into an account earning 4% a year.  Please note that the calculation above does not take into account the draw down of principle!

As you can see, when calculating the amount of Life Insurance someone needs, there is a huge emphasis placed upon the insured’s annual income.  What happens when the person does not earn income?  This is the problem most advisors face when determining the amount of Life Insurance the Stay At Home Mom needs.  I have researched this topic in depth, and as of right now, most “accepted” assumptions place the annual worth of the Stay At Home Mom somewhere between $35,000 and $45,000.  Is this right?  In all honesty I believe there are three answers to that question.  The three answers are: Yes, No, and Maybe So!  I know personally, that if I had to hire someone to replace everything my wife does for me, my annual bill would probably be more like $60,000.

Problem Two – Convincing The Family The Stay At Home Mom Needs Life Insurance

If we are able to agree on an actual dollar figure to place on everything the Stay At Home Mom does during the year, the next (and biggest) problem that must be dealt with is convincing both the Husband and Wife that the Stay At Home Mom NEEDS life insurance.  You may be asking yourself, “Why must both the husband and wife be convinced that the loss of the Stay At Home Mom would cause financial hardship to the family?”  I actually ask myself that same question!  Stay At Home Moms, how mad would you be if someone said the job you do on a daily basis is not worth anything?  How mad would you be if you heard someone say that since you do not contribute financially to the family, you are less important than your husband?  By now, I would assume that you would probably be ready to rip someone’s head off.  Well, in my dealings with young familes, the WIFE makes the life insurance decisions about 75% of the time.  Yet, atleast 90% of the time, the wives I have dealt with will decline to purchase any life insurance on themselves!

I understand that most families feel like they need to prioritize expenses like life insurance.  I agree, to an extent!  If you are a Stay At Home Mom, your main objective should be to take care of the life insurance needs of the “bread winner” first.  As a Stay At Home Mom, you look out for the well being of the family unit on a daily basis.  Why would you stop looking out for the family at such a crucial time?  If you (the Stay At Home Mom) were to pass away today, would your husband be able to resume his day to day activities of providing an income for your family if you passed away tomorrow?  Would your husband be able to maintain his current work schedule while at the same time getting the kids off to school?  Would your husband be able to maintain his current work schedule and get the kids to soccer practice, swim practice, dance, or gymnastics?  The laundry list of extra jobs your husband faces with your death could lead him to an eventual breakdown.  If he breaks down, would his job performance suffer?  If his job performance suffers, could he lose his job?

This is my call to action for all Stay At Home Moms!  Your job is as important (in my opinion MORE IMPORTANT) as your spouse’s.  It is time for you to take the credit you deserve and realize your true worth.  You work tirelessly each and every day to make sure your family has all it deserves, doesn’t it make sense for you to leave your family in best shape possible when you are no longer here?

About The Author:  Jack Wingate is a Professional Insurance Advisor and Founder of ALLCHOICE Insurance in Greensboro, NC. For more information about Jack Wingate or ALLCHOICE Insurance please visit http://www.allchoiceinsurance.com