Insuring a stable future: Experts explain life insurance options

Sept. 14--Not all things are created equal -- including life insurance.

"Life insurance is not a one-size fits all. Insurance needs vary from person to person. Whether you're just starting out or getting set to retire," said Jack Dolan, vice-president of media relations at the American Council of Life Insurers, Washington, D.C.

Insurance can be complex , but it is important to know exactly what you are paying for," he said.

"If you already have an agent and don't really know what type of policy you have, or what your policy pays, you need to make an appointment with your agent," Dolan said.

Where to start

Things have changed in the past 20 years, "not everyone has a family insurance agent like it was at one time, he said.

If you don't have an agent, the best way to find a good agent is to talk to friends and family to find out if they have an agent and if they recommend the agent, Dolan said.

Another option is to check online and setup an appointment with an agent. If you don't feel comfortable with the agent, make an appointment with another one.

"Remember, over the years, you will build a relationship with your agent as your life situations change," he said.

Before you meet with the agent, think of what your insurance needs are now. If you are single, what you want or need from your policy will be different than if you are married.

Then when your life changes, such as getting married or having children, you can make the changes to provide for your family. These changes could mean switching from term to whole life insurance, Dolan said.

How high a death benefit?

If you are single and not responsible for taking care of anyone else, you probably won't need as much insurance, "but if you have a wife and children that's an entirely different picture all together," Dolan said.

You need to consider how much you provide and who depends on you financially. You will need to take in account how your family pay for the final expenses and repay debts after your death.

College tuition, credit card bills and mortgage payments can eat into the benefit quickly. Some mortgages require the primary person on the mortgage have a life insurance policy to pay off the home, depending on what your age was when the home was purchased.

"There are several good calculating programs, such as LifeHappens.org or MSN Money to help you make the right decision on the amount of coverage," he said.

What is term insurance?

"Term insurance provides death benefits only if you die while the term of the policy is in effect. The cover is for a set period of time, and as long as you pay your premiums, you are covered, but at the end of the period you will no longer have insurance," Dolan said.

This can be a good choice for young families, who can't afford a large monthly premium and are living on a very tight budget, he said.

"Most term insurance policies can be changed (converted) to permanent insurance policies, but when you can do this is up to the issuing company you bought it from, said Eric Aposhian, the vice president, wealth management at Joyce Insurance Group, Stroudsburg.

It will spell it out inside the contract and normally ends at a certain age or when the guaranteed period ends. An example would be if a woman purchases a 30-year term policy when she's 30 years old, normally she would have up until the end of the 30 years to ask for conversion.

"One reason do convert would be if the client's health is much worse then when the policy was originally purchased, because benefits of converting to permanent insurance is that the issuing company won't ask any health questions and there are no health exams you need to do," he said.

You need to keep in mind that you are going from term insurance to permanent insurance and you're doing so at a much older age, so the amount they ask you to pay might be much higher then what your currently are paying.The advantage is you don't have to do it at the amount of insurance you have now. You can ask for a reduced amount.

"Knowing when the conversion period runs out is the most important part. It should be spelled out inside the contract that you own. If it isn't, call the company and ask them when the conversion period ends. Most companies will send you a letter telling you the period is ending," Aposhian said.

the earlier you convert the policy the cheaper it will be because the price is dependent on the age you are at when you convert. So the older you are the more expensive conversion will be.

simple call the company and ask them when does my conversion period ends. Also most companies do send you a letter telling you that this period is ending and if you would like to talk to an agent about conversion. Also

On the plus side of the scale is term insurance is one of the easiest and affordable insurance to buy and can be purchased for a specific time period such as 5, 10 15, or 30 years.

This type of insurance can also be used as temporary additional coverage with a permanent life insurance policy and can be converted to a whole life insurance policy.

"Remember, you have the ability to change the policy at any time during you life when your circumstances warrant it," Dolan said.

On the negative side of the scale once the term expires, the policy must be renewed, if you want the coverage to continue.

Also, as you age, the insurance premium on increases on term insurance, especially after the age of 50.

Whole life versus variable

Both are considered permanent insurance are both types are based on investment contracts, but the risk factor is much greater with a variable universal.

Whole life Insurance

"With whole life insurance the customer has control over the money that is invested inside the contract," said

Also, whole life insurance policies give you the potential to receive dividends, which can increase the value of the policy when the insured is living or provide an increased death benefit for your beneficiaries, he said.

"Whole life contracts are guaranteed and even when interest rates move up or down, it has nothing to do with the performance of the contract. The issuing company takes on all the risk," Aposhian said.

The premiums you pay are guaranteed to remain the same for the life of the policy, regardless of age or health and the beneficiaries will receive at least the face amount of the policy upon your death -- assuming you do not have outstanding policy loans and that the policy premiums are paid on time.

As long as the policy is is force, your cash value will grow each year, tax-deferred, until it matches the face value of your policy. When you need it most, you'll have access to your cash through loan and withdrawal.

Variable Universal

Variable universal life insurance can be more aggressive with the money and has sub accounts inside the contract that allows the owner to be in control over what types of investment he or she would like, Aposhian said.

"It kinda works like your 401k, by giving you choices like investing in the S&P 500 or even a simple bond fund," he said.

The one problem with this type of insurance, according to Aposhian, is the high amount of fee's inside the investment contract and unlike whole life insurance, the investments are not guaranteed.

"The owner of the contract takes on all the risk and I normally wouldn't recommend a variable universal life contract to someone unless they have a good understanding of the risk they are taking," he said.

If you have done an excellent job with maxing out your 401k's and IRA contributions and have also done a good job controlling debt then this might be the type of insurance for you, according to Aposhian.

One final caution, "I wouldn't call them investment accounts. They are life contracts plan and simple. If you died a few years after you purchased them or even before you started taking money out of them before retirement, then you simply bought a life insurance policy. So always remember that first," he said.

A variable universal life insurance policy's combination of protection and investment options can be a great option for those who are looking for insurance protection and are comfortable with investment risk, Dolan said.

___

(c)2015 the Pocono Record, Stroudsburg, Pa.

Visit the Pocono Record, Stroudsburg, Pa. at http://www.poconorecord.com/

Distributed by Tribune Content Agency, LLC.