The Best Few Minutes Of Your Life Regarding Life Insurance

When it is time to consider developing a life insurance plan, a few key factors must be addressed.  Why have life insurance, at all?  How much life insurance is enough?  How long will the insurance policy need to last?  What type of life insurance do I need?  How will I know that I am getting the best price?  Do I need professional advice?  Does the agent have the necessary expertise as well as my best interests at heart?  Below is my opinion of the best ways to answer these questions.

Why Have Life Insurance AT ALL?  Life insurance is a substitute for money.  If you have enough money, you don't need the substitute.  Conversely, if you don't have enough money, then you need the amount of life insurance that is the difference between the amount of money that you have and the amount of money that you need.   As an example, let's say that a husband earns $75,000/year, his wife also earns $75,000/year, and they want to protect both incomes for the family.  As you will calculate in the next section, the amount of money necessary to fully fund that need is probably $1,000,000.  Now, if the family has no money, then the husband and wife each will need to have a $1,000,000 life insurance policy.  But, if that husband and wife have saved $1,000,000 in total, then neither of them needs any life insurance.  That one sum of the "real thing" removes the necessity of two "substitutes" (life insurance policies), because if the husband dies, the wife keeps the $1,000,000, and if the wife dies, the husband keeps the $1,000,000.  Therefore, your objective is to determine the necessary amount of the substitute (life insurance) and to purchase it for as long as it takes you to accumulate the real thing ($1,000,000 in cash).  The sections below will provide you with the exact detail how to compute your needs, so that you may knowledgeably purchase life insurance.

And you thought you came here just to research life insurance.  As with most facets of life, nothing operates in a vacuum.  This is one reason why it is important to have an experienced person at your side to help see all that for which you may not know to look.

How Much Life Insurance Is Enough? One of the most accurate ways to determine the amount of death benefit that a family needs on an income earner, is to determine the lump sum of money necessary to deliver the desired income, year in and year out, including inflation, forever.  For example, let's say that the income earner makes $75,000/yr.  Some of that $75,000 goes to the food, clothing, recreation, travel, etc. of the income earner.  If the earner is no longer alive, then those expenses are no longer expenses.  The remainder of the $75,000/yr. is necessary for the support of the entire family.  Thus, maybe 4/5 of the $75,000 is the correct number, as our example.  Only you and your family can determine how much of your income will be necessary upon your death.  If the desire is to deliver $60,000/yr. to your beneficiaries, you need to divide that target $60,000/yr. by a particular rate of return.  If you are somewhat aggressive, that rate of return may be 6%.  If you are more conservative, then divide the $60,000 by 5% or 4%.  The lower the divisor, the higher the necessary lump sum to deliver the $60,000/yr.  Thus, $60,000 divided by 6% = $1,000,000.  Now, if you have substantial money saved in a retirement plan or savings account that will go to your family upon your death, then the $1,000,000 may be reduced by that amount.  Let's say that you have $250,000 in your 401K at work.  Therefore, instead of needing a $1,000,000 term insurance policy, you will need a $750,000 term life insurance policy.  (Note: If anyone tells you that your spouse cannot access a retirement plan prior to age 59 1/2 without penalty, then that (non) answer will tell you that you need a different advisor).  This formula works for any income amount.  Play around with the numbers at 4%, 5%, and 6% and then give me a call.  It won't cost you a dime to run your situation past me.

How Long Will The Policy Need To Last?  This is an important question with 2 facets.  The first and overriding rule is, "Do not sacrifice the amount of death benefit on the altar of the length of term."  That is, if you need $1,000,000 in order to provide appropriately for your family, do not drop the face amount to $500,000 just so that you can afford a 30-year-term policy.  It is far better to guarantee the $1,000,000 for 20 years than it is to leave your family with less than sufficient income just so that you can have "insurance" for a longer time.  During that 20 years, you just may increase your income so that you can rectify the "problem" of not having a 30-year-term, but once you are "pushing up daisies", you cannot come back and say, "Hey, wait a minute!  I need a million dollars to go to my family, not $500,000!"  Therefore, determine the amount first.  Then, buy that amount for as long as you can afford to do so, keeping in mind that the ideal is to make it last until you've accumulated the real thing (cash) in your Roth IRA.

The formula. The following will allow you to be able to compute the length of time YOU need life insurance (the substitute) and how long it will take YOU to accumulate enough money (the real thing) for your family.  For our example, we will use the insurance need as $1,000,000.  We will begin with no savings and we will use only monthly investment.  You may adjust yours accordingly.  Compute your How Much Is Enough, first.  Then, compute the length of time.  Assuming that you are below age 50, we will use 12%/yr. as a rate of return.  ( I know, "Where can you get 12% in THIS market?"  There are NO guarantees at 12%, but I'll answer that with this challenge:  YOU please show me a mutual fund that has a 20 year history, that is either a growth or a growth and income fund, in which you have asked for a historical illustration investing monthly [not annually], and show me one that has NOT returned 10% plus.  You will find some.  But you will also find some that are above 12%.  Call the fund family and require a monthly historical illustration.  I no longer sell 'em, but I still know 'em.  If you want a little less opportunity and a lot more safety, I'm your guy.

1.  If you have a 10 year term policy, it will take you $4,347.10/mo. to save $1 million in 10 years at 12%.

2.  If you have a 20 year term policy, it will take you $1,010.87/mo. to save $1 million in 20 years at 12%.

3.  If you have a 30 year term policy, it will take you $   286.13/mo. to save $1 million in 30 years at 12%.

So, the decision is: Do I spend a few more dollars on the 30 year term so that I cannot be required to invest a TRUCK LOAD on my monthly investment amount?  Or do I say, "I hate spending $150/mo. on life insurance, so I'll be happy with investing $4,347.10, while accepting full investment risk, just so I can have 10 year term?"  Either way may get you the million dollars, but one way removes far more income from your disposable income bucket.

What Type Of Life Insurance Do I Need?  News Flash:  ALL insurance is term insurance.  There is NO other kind.  It is either Death Benefit alone or it is Death Benefit bundled with some type of Cash Accumulation Account.  After almost 3 decades in the insurance and investment business, it is my studied opinion that unless you earn substantially more than $160,000/yr. as a family, you have no business owning ANY life insurance other than Term Life Insurance.  Why?  Because the tax laws in the United States make buying the appropriate amount of TERM insurance and then investing the DIFFERENCE in the price of that term insurance and an equal face amount of ANY KIND of Cash Value Insurance (Whole, Universal, Variable) in a Roth IRA, far and away your best expenditure of funds possible (as long as you don't earn too much to qualify for a Roth IRA).  Ask the agent who is trying to sell you whole life to give you BOTH a $1,000,000 term quote and also a $1,000,000 Whole Life quote and LOOK AT THE DIFFERENCE in the monthly premium!  If he/she hedges, call me and buy the term policy and invest the difference in the Roth IRA of your choice!  Take a look at the Retirement Planning page for a formula to determine how long it will take you to SAVE THE FACE AMOUNT of your term policy in your Roth IRA!  If you have CASH, pray tell why you need INSURANCE?  There are two reasons, but unless a "Term"ite like me advises you to do so, PASS.  Here's why:  If an agent is paid 60% commission on a $100/mo. term premium, that's $60/mo. in agent income.  Now, if the whole life policy costs $1,000/mo. for the SAME face amount, the agent earns $600/mo.  If you fall into one of the two "reasons", I sell a cash value product that pays a FRACTION of the percentage of commission paid by TERM policies.  The difference is that I'm TELLING you the facts.  I have found that, not only am I doing a FAR better job for the families of my clients, but they can SEE it and I sell TONS more policies and FAR more death protection by selling term insurance for death benefit!!!  I sleep well, too.  Now, Art, have you ever sold any form of cash value life insurance?  I have.  But in every case there was a specific reason for doing so that made sense on paper... tax sense and death benefit sense.  I've never left a family under-insured.  Please don't leave your family under-insured just,  "to have something left over if I don't die before I'm old."  Your Roth IRA or your "alternative" on the Retirement Planning Page will do a far better job for you with regard to savings.

How Will I Know That I Am Getting The Best Price?  Mortality rates have plummeted in the past 5 decades and along with them, so have insurance rates.  If you bought your 30-year-term policy a few years ago, and if your health is as good as it was then or better, take a look at a NEW QUOTE.  Then, ask yourself, "Is this my best quote?"  The software that I use has proven itself to be the most accurate for a general quote and to be the lowest that I can find.  My software takes into account YOUR age, sex, health history, medicines, height, weight, career, recreation, tobacco usage, and family history, and finds the best insurance quote for YOU (whether or not you are Superman or Superwoman).  Think how that differs from the beautiful quotes you see advertised on TV but for which very few people can qualify! If you are one of those people, I will find that company for you!  If you are not, I will find the best company and policy FOR YOU!

Do I Need Professional Advice?  Can you answer all the questions previously asked?  Do you fully understand the implications of those answers as well as the implications of wrong answers?  Can you adjust both the question and the answer in the examples to your tailored situation?  Do you know that whether you use my search engine for term insurance or whether I use it with you, the cost of the same policy from the same company is identical whether I am involved or not?  It costs you nothing on that policy to use me.  But how much will it cost you if that policy is the wrong one?  Or not the best one?  Or that there is one that suits you even better than the one you found with the software?  Yes, you should run your results by me.  My commitment to you is that you will not only get the best value for your family, but that you will know why it is the best for you and you will understand the reasons enough to explain the basics of them to your family and friends.  For Retirement Planning, please go to that page on this site.  After you've read the page, look closely at the blue type at the bottom of that page.

Does The Agent Have The Necessary Expertise As Well As My Best Interests At Heart?  Check the agent's license.  My Texas License (# 671125) may be seen here:  http://www.texasonline.state.tx.us/NASApp/tdi/TdiARManager   Type in Artis Williams and look for Helotes, TX.  (The other guy is my son.)   My Georgia License (# 297207) may be seen here:  http://www.gainsurance.org/Agents/AgentStatus.aspx  Type in Artis Williams.  My New York License (#LA-1114488) may be verified by calling the New York Department of Insurance at 1-800-342-3736.  Beyond licensing, does the agent sound like he/she is knowledgeable?  Does he make the complex simple or the simple complex?  Does she make sense?  How long has he been in the life insurance business?  What kind of life insurance and how much does that agent own on his/her own life?  Are there any complaints against the agent?  Do you trust what you are hearing and seeing?  Will the agent let you SEE the computer screen in real-time or may he/she be seeing better numbers than you are receiving?