Life insurance premiums don’t have to be expensive in relation to the coverage you receive. This misconception stems from many consumers’ poor experiences with life insurance agents who are more concerned with their commissions than their customers. The good news is that there are plenty of options for people who don’t have much disposable cash!
I recently had an opportunity to spend some time with Tom, a great life insurance agent who explained different types of policies, and gave me some insight as to how they fit various customers’ budgets. He says the best way to serve his customers is to realistically determine how much coverage is needed, then find a policy that doesn’t hurt the wallet.
Tom broke down the available policies into two main categories: term and permanent. Term policies allow consumers to purchase a large amount of coverage at lower prices for a specific period of time, while permanent plans provide a fixed payment over the policyholder’s entire life.
Most people managing a tight budget will find term life insurance to provide the most favorable premium-to-benefit ratio. Tom showed me that I could purchase a $50,000 policy with a 10-year term for less than $10 per month. The best part is that premiums don’t increase on a linear scale with coverage amounts; increasing the coverage to $500,000 would only add about $6 per month to my plan.
I asked Tom how this would suit one of my friends. My buddy is supporting a family of five, including himself, three small children, and his disabled wife. Tom says my friend should consider a term plan in the range of roughly $1 million, due to his limited monthly resources and the extra needs of his family, given his wife’s condition. For a young man in good health, such a plan could be as little as $25-30 per month.
Tom, on the other hand, is in a different financial boat. He has more money to spare for insurance, so he combines different types of policies for maximum benefit. In order to ensure the family’s needs are met, he has a term policy with a large payout. He also carries whole life insurance that builds cash value over the life of the policy. Tom’s children are covered by whole life or universal life policies, which locks them into a low rate for the rest of their lives while getting a head start on investing for their future.
Permanent policies – whole life, universal life, and variable universal life – offer more options for customers that can afford to put a bit of extra cash into their insurance. Generally, it is more expensive than purchasing comparable coverage under a term plan, but the policy premiums are invested to provide a cash value component. These options can be exercised as tax shelters, or they can diversify the portfolio of savvy investors who may have already utilized other retirement accounts to the maximum allowable limits.
At the end of my session with Tom, it was clear that I really have no immediate need for life insurance at all. I’m a young, single veteran, which leaves no one to care for in the event of my untimely demise, and no burial expenses due to my Veterans Administration benefits. If I happen to find some disposable cash, Tom said he’d steer me towards universal or variable universal policies as an investment that also insures any incidental needs are covered if necessary.
Your life insurance benefits could easily outweigh the premiums if you take the time to find an honest agent who will cater to your individual needs. Be wary of insurance representatives who immediately steer you toward high-dollar policies without taking a serious look at your circumstances, as they are likely looking out for their commissions, and you will end up paying more than necessary. The right agent offering you the right products at the right time could save you a small fortune and alleviate a lot of headaches.