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Life insurance need not be expensive

Instead of ordering another frothy, overpriced latte at the corner coffee shop, Melvin Weinberg hopes you’ll consider purchasing some life insurance.

He is not on some anti-caffeine crusade. Rather, the longtime exclusive financial specialist who owns and operates an Allstate Insurance agency at 2990 Sunridge Heights Parkway in Henderson wants to dispel the myth that life insurance is a cost-prohibitive product for most people.

In actuality, he said, “It’s a bargain.”

Especially when one considers that for the equivalent cost of a weekly cup of java each month, a 30-year-old “preferred”-rated, nonsmoking male can likely purchase up to $250,000 worth of term life insurance with Allstate for less than $20 in monthly premium payments.

In the event of his death, that quarter-million dollars in funds could help support the man’s spouse and children as they encounter financial obstacles and commitments in the future, Weinberg said.

“The worst tragedy to that family is … the kids have lost their father.” Without life insurance benefits to cover the financial loss of his salary, Weinberg said, “in a few months, they’re also gonna lose their home. … To recover from that (is) very tough.

“You buy life insurance for the people you love. You don’t buy life insurance for yourself,” Weinberg said. “It’s a selfless thing that you have to do for your family. Virtually everyone who has someone dependent upon them needs life insurance.

“Getting people to understand that their loved ones are worth more than (the cost of) a beer or a cup of coffee, and that they need to put away some money for the people that they love” is not easy, he said. “People do not want to talk about dying.”

Tony Adler, owner and operator of Leo Insurance Group at 8875 W. Flamingo Road, agrees. He said, “People think nothing is ever going to happen to them and … they just never have the money” budgeted for life insurance costs. They “don’t mind going out and buying the next BMW with an enormous lease payment, but the $25 or $30 in life insurance (premiums) just doesn’t seem like a priority.”

Adler shared the story of a friend of his who died unexpectedly in his mid-30s, leaving behind a wife and young child: “They (previously) had life insurance. They decided they couldn’t afford it, and they let (the policy) lapse” before the man’s death.

As a result, the widow became buried beneath a mountain of vehicle and home-mortgage debt. In hindsight, Adler said, “For 20 or 30 bucks a month, they both could have had at least a few hundred thousand dollars each in life insurance. That hit hard.”

Christopher Zockoll is the financial products division manager for Platinum Risk Management, an insurance services company at 1057 Whitney Ranch Drive in Henderson. “When you purchase life insurance, you’re doing it for the other individual … because there is a need, a desire to ensure that … the other person continues to move forward financially without you in the picture,” he said.

The selection process

People often don’t take the time to examine the various life insurance products that are available, Zockoll said. “There are different components of life insurance that people need to understand.”

The best way to accomplish that is to “sit down with an experienced (insurance) agent who is going to ask all of the right questions” and assist clients in purchasing the best products to suit their needs, said Weinberg, adding that Allstate is hiring insurance agents (visit allstate.com/careers.aspx for information).

Like many insurance agents, Adler begins by developing a “needs analysis” for his customers to determine what they want to accomplish after their death and once a death benefit is paid. That may include covering burial costs and paying off mortgage loans, among other outstanding expenses.

Other clients desire a “more robust outcome” to continue providing financially for their families, he said. For example, they may want life insurance benefits to fund a child’s college education, or be plentiful enough to ensure that the surviving spouse need not return to the workplace in search of income.

“So I look at both sides of the coin and try to figure out the best outcome for them,” Adler said.

Industry experts recommend that individuals purchase 8 to 10 percent of their annual earnings worth of life insurance coverage, but Adler disagrees: “That’s fine if you’re just looking to pay off debt but … that still leaves (the beneficiary) with everyday living costs” to cover.

Also, it’s not a good idea for individuals to rely solely on a life insurance policy offered through their employer to totally meet their death-benefit needs, as such policies usually never provide adequate coverage, Zockoll said.

“But here’s the bigger dilemma: That insurance most of the time is not portable,” he said, meaning the policy may not move with an individual from job to job.

Although the “breadwinner” of the family should have a life insurance policy in force, Adler said it is equally important for stay-at-home parents to have coverage. The death benefit can help the surviving spouse afford child care costs and other domestic-related necessities.

Even people without a family dependent upon their income should consider purchasing a policy, he said. “You don’t want to leave the (financial) burden of your burial and everything that goes around the planning (of it) … to your beneficiaries, or your heirs, or whoever is left.”

Meanwhile, Zockoll recommends to business owners that they purchase additional life insurance to help pay for expenses when a key person within their company dies.

“A lot of companies … have had to close shop because their (business) partner died and they couldn’t afford to pay the (deceased’s) spouse” to purchase their share of the company from them, he said. In such cases, a death benefit could also provide funds to help keep the company afloat financially.

Term insurance

Ultimately, the decision of what type of life insurance product to buy depends “on what’s right for the client. That’s why there’s a menu for the client to pick from,” said Zockoll, adding that Platinum Risk Management is hiring additional staffers (visit platinuminsurancellc.com).

Term life insurance is “pretty straight forward and very vanilla,” he said. It provides renewable coverage for a specified length of time, typically 10 to 30 years.

Although term insurance is usually the most affordable product for customers (“Everybody, to some extent, can afford some term insurance,” he said), the downside is “at the end of the term, the premiums increase because you’re older.”

It is wise, Weinberg said, for people to revisit their term policy before its expiration date to re-evaluate their insurance needs.

“Young families growing up need lots of coverage,” he said, which term insurance can provide at reasonable rates. As children age, the amount of coverage needed by a family typically lessens and can be changed to reflect that.

The old insurance industry adage of “buy term and invest the rest” is a bit of advice often given to life-insurance shoppers who may also be looking to build their investment portfolio. The idea is to purchase low-cost term insurance and invest in the stock market or mutual funds the money they save as a result of not having purchased pricier life insurance products.

“That sounds great on paper,” Adler said of the theory, “but most people don’t have the discipline or the structure to continue to invest the rest.” He instead advocates for his customers to “pay themselves first,” for example, by funding an individual retirement account for themselves or a college savings account for their children.

Permanent Insurance

Permanent insurance is divided into four categories: universal life insurance with fixed interest rates, universal life insurance with variable interest rates, indexed universal life insurance and whole life insurance.

Universal life insurance as “a term policy and investment all built into one policy,” where the cost of the insurance typically is low and most of the premium paid goes toward the investment portion of the policy, Zockoll said.

If the investment is in a fixed account, it will grow at a fixed interest rate. In a variable account, the premium is invested in a subaccount tied to the stock market.

“In theory, you can participate in the upward movement of the stock market. Obviously, if the stock market goes down, you could have a negative growth on your cash values,” he said.

Zockoll said equity indexed universal life policies are “the most popular product of all the permanent life insurance right now,” because they allow people to “participate in the stock market without the risk of the stock market.”

He likens the policy to gambling on a slot machine, where “you put your quarter in (and) you pull the handle.” The difference is if the stock market goes down, the insurance company “returns your quarter back to you and you play again.”

However, “If the market is up and you pulled the handle and won, so to speak … you voluntarily give a percentage of your winnings back to the insurance company because they’re assuming all the risk.”

Zockoll said equity indexed universal life policies make sense for “people who don’t know what the (stock) market can do or don’t understand it or can’t watch it … because they’ll still get a percentage of the market without the market risk.”

Whole life insurance “is a totally guaranteed product,” he said. Although the dividends it pays are not certain, a policy’s cash-value growth is generally guaranteed upfront.

Also, “Whole life is exactly what it says — it will be there for your whole life. If you live to be 100, whole life is still there for you to pay that death benefit.”

Because whole life is typically the most expensive of all insurance products, however, its premiums keep it out of reach for many consumers. “For people who are younger or who are trying to build their financial careers, they’re not in a position to pay that much in premium for the death benefit they need,” Zockoll said.

For those who can afford to purchase it, whole life insurance does have an upside: As years progress, policyholders can borrow against a policy’s accumulated cash value to supplement retirement incomes, among other uses.

“It’s really like a loan to you, and you never have to pay taxes on that money,” said Adler, whose Leo Insurance Group is hiring sales agents (visit leoinsurancegroup.com). “So (when) you pass away, the beneficiaries will get the life insurance (benefit) minus what you took out of it.”

Given that the nation is still recovering from an economic downturn, Adler said he thinks people these days are more willing to consider purchasing permanent life insurance as opposed to term insurance. “It’s easy to look at the other side and know that it is always going to be there for you.”

There’s no arguing with the peace of mind that life insurance coverage can provide, said Weinberg, who delivers about a dozen death-benefit checks annually to his clients’ beneficiaries.

Although every death “is a tragedy,” he said, “the difference is while the next-door neighbor is bringing (the surviving spouse) a casserole, I’m bringing a quarter-million or half-million dollar check. That’s not going to bring (the deceased) home, but … when I deliver it, a lot of their worries go by the wayside.”

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