The Facts of Life (Insurance)

Let’s face it, for everyone reading this blog your days living large in the jungle canopy and hanging out with your monkey friends and family will, inevitably, come to an end. Sad but true. We only get to be monkeyz on God’s green Earth for so long.

I know. This is not a very cheery way to start out my first blog of the New Year. You were probably expecting a blog about what resolutions I’ve made for 2017 and those I’ve already broken. Don’t despair because, in a roundabout way, this blog is about resolutions. It’s about resolving not to ignore or avoid one of the most difficult topics there is to discuss: death (either our own or that of a loved one) and its financial impact on those left behind. That’s what got me thinking about my wife and our two little ones recently and wondering about life insurance.

My good friend Al Winzinger is a life insurance specialist with the Automobile Club of Southern California in Santa Ana, CA. He and I put together the following Q&A to help answer some questions you might have around life insurance, such as when and why get it, and coverage types.

If you have questions not answered here, feel free to reach out to Al at (714) 850-4795 or [email protected]. He can do everything by phone as long as you’re located in the state of California. 

Q: Why should I consider life insurance?  

A: When reading about or talking about someone who has passed away, it’s common to say, “He/she died so unexpectedly.” While we typically don’t know when and where we are going to die, it should not be unexpected. We are all going to die, eventually. What I find interesting is that while we are mandated to get auto insurance because we MIGHT get into an accident, it’s an OPTION for us to take care of our financial responsibilities before we die. And really, that’s what life insurance is about—making arrangements while we are still alive so that we can take care of our financial responsibilities for ourselves, our families, and even our business partners after we die.

Q: When should I get life insurance?

A: Like most things, the time to get life insurance is BEFORE you think you really need it. In fact, the earlier we purchase life insurance, the less expensive it will likely be and the more your money will grow (yes grow!). Life insurance can be used to build cash value (currently 3.75 % interest), so consider that when choosing to invest in stocks and real estate instead (where you can actually lose your money). Life insurance can also be used as a tax shelter and borrowed against.

Q: What types of Life Insurance policies are there?

A: Term life insurance policies give you a larger death benefit for a premium that will stay the same for an agreed amount of time, usually 10 to 30 years. You can also buy term life insurance policies that have riders for Return of Premium (ROP), which will give policy holders back every penny they paid into the policy at the end of the contract. For example, if you bought a 20-year term with a ROP rider at $100/month or $1,200/year, at the end of the 20-year contract, you would get back $24,000 tax-free. Typically, term policies are used to cover Mortgages, the financial loss of a spouse, or to help take care of the costs of raising a child, etc.

Permanent life insurance policies are those policies that can build cash value, that can be borrowed against, and that can have a guaranteed death benefit. These are best for building a legacy and paying final expenses, such as funeral costs.

Q: Why should I care if I have life insurance—after all, I’ll be dead?

A: Chances are that when you die, you will be leaving behind a loved one (family, friend, partner, etc.) who will be affected by more than just the emotional aspects of your passing. Did you know that the two main reasons for bankruptcy following the loss of a spouse are medical expenses and loss of the deceased’s income? This situation is even more critical when a family is on a fixed budget, when there are young kids involved, and/or when there is a remaining mortgage on a house. You don’t want to be that guy (or gal) who leaves his/her family in the lurch without adequate life insurance coverage to protect them.

Q: I co-own a small business. How important is life insurance for my business partner and me?

A: Losing a key person within a small business can be catastrophic. Will production slow down? How long will it take to find another person to do your/his/her job? Having ample cash on hand to keep a small business flowing without interruption during such a loss could mean the difference between keeping the doors open or having to close them.

Q: I hear that having a life insurance policy is an important part of financial planning. How so?

A: Life insurance can be a big part of your financial planning, especially related to how you can protect loved ones from financial loss during a very emotional time.

For example, how many times have you seen a fundraising car wash for someone who passed away or a “gofundme” campaign set up to bury someone? In the majority of these cases, someone has gotten ill, rung up medical bills, and then passed away. With proper planning, he or she could have bought a permanent life insurance policy against which he or she could have borrowed to help pay medical costs (in fact, if the person was deemed terminally ill, he or she could get up to 50% of the policy to use for bills or alternative treatment that health insurance companies do not pay for, or even use it for a once in a lifetime trip).

In another example, let’s say you just sold a business and want to leave the money you made from the sale to loved ones or to a charity. Investing that money in a life insurance policy will not only grow that principle with interest, but there might be no inheritance tax on that life insurance policy (depending on which state you live in).

Whatever your needs or financial planning objectives, to ensure you get the most from including life insurance as part of your financial planning strategy, it’s best to seek the counsel of a qualified broker and/or agent familiar with the marketplace in which you live.

Q: Should I buy insurance through work or directly through a life insurance company?

A: How you buy your insurance is likely to depend on your situation. Many employers pay all or most of the premium for employees and sometimes their spouses, so this can be financially attractive. If you have a preexisting condition, getting life insurance through your employer may be your only option, so you may want to max out coverage as much as you can. Please note, however, that life insurance offered through an employer typically will be more expensive and your premiums will increase each year. If you buy life insurance direct from an agent or broker, you have a better chance of getting lower rates that won’t change for the life of the policy. Some people opt to get both kinds of coverage—that offered through an employer and additional coverage directly through a life insurance company.

Looking for More Guidance?

If you have questions or want a quote, stop monkeying around and reach out to Al Winzinger at (714) 850-4795 or [email protected].

Paul June is King Monkey of BARREL O’MONKEYZ, a San Diego-based strategic marketing agency specializing in the Sports and Active Lifestyle markets. Barrel O’Monkeyz serves as a seasoned, outsourced marketing team for companies looking to ramp up sales and launch new products. Our barrel is full of talent and creative arms ready to prove we don’t just monkey around!