Life insurance for the young and young-at-heart

by Staff Writer

Published: September 18,2000

Life insurance is something that will hopefully never need to be cashed in, but it is something that everyone should have, according to experts.

The insurance provides income support for survivors in the case of death and can also help to pay for funeral expenses and other things as well.

“The younger you are, it’s the best time to buy it because the premiums are lower,” said E.J. Trosclair, vice president of agency at Southern Farm Bureau. “The school

of thought with some people is you don’t need it when you’re young, but that locks in the lower premium at a younger age.”

Life insurance protects a family and keeps them at the same standard of living. Even a single person with no dependents and no debt should have life insurance, though,

because if that single person marries and has children some day, that family will be dependent on that once single person.

And whereas some say life insurance isn’t needed for older people, others believe older people do need it.

But, Trosclair said, “Even when you die there are going to be some final expenses. (Life insurance) could be used to pay estate taxes. There’s always going to be a

need for life insurance.”

There are two basic types of life insurance available, depending on one’s needs. They are cash value and term insurance.

Cash value insurance has both a savings component and an insurance component. It provides life insurance protection for your family in the event that you suffer an

untimely death and also accumulates a cash value over time.

In many cases, cash value insurance keeps a level premium over the years.

But, warned Trosclair, “Whole life insurance was never designed to be an investment. It just acts as a good savings.”

Cash value insurance covers long-term needs and, unlike term life insurance, the policy will not need to be renewed periodically.

Term insurance provides life insurance coverage for a certain period of time or a term and is often called temporary insurance or pure insurance. When one lives longer

than the term of the insurance coverage, nothing is paid.

Term insurance is perfect for those who need a lot of insurance coverage but have a low cash flow. A young family with limited cash resources may have a need for life

insurance, but with living expenses and education needs it may be difficult to afford it. Term insurance can be of great help in such a situation.

Another situation in which term insurance may be needed is for the short-term, such as coverage during one’s working years, college years or during the period of a

mortgage or loan.

There are advantages to both term and cash value insurance.

Cash value insurance not only offers life insurance protection and lets you make money on your money, all of the interest and earnings on the policy’s investments are

allowed to grow free of income taxes until the policy is surrendered or one begins to withdraw the funds. Also, depending on the insurance company and the type of

policy, cash value may allow withdrawals from cash value. Loans against the cash value can also be made. And of course there are a lot of investment choices for the

cash value part of one’s policy.

The advantages of term life insurance include having a low cost versus a large death benefit and having flexibility. The policy can also be renewed for an additional time

period.

But just as there are advantages to both term and cash value insurance policies, there are also disadvantages.

With cash value insurance, the premiums are more expensive than term life premiums. And cash value contributions may also be limited because the cash value grows

tax deferred. The underlying investments of cash value insurance are also subject to fees and potential losses.

Term life insurance disadvantages include an increase in premiums at each renewal (premiums generally get more expensive with age), and an automatic termination at

a certain age with most term policies.

Regardless of whether term or cash value insurance is used though, both spouses should have it, according to Randy Sullivan, president of the Mississippi Association

of Life Insurance and Financial Advisors.

“In the old days, the male was the predominant breadwinner, but now as we enter the 21st century both spouses are working outside the home.” Life insurance is

helpful to have on both spouses so, in case of death they can still live the life they were accustomed to living.

“I have seen people have to move out of homes because they couldn’t afford house payments,” Sullivan said.

And whereas life insurance on adults is second nature for some, life insurance on children may not be. Sullivan said insuring children is just as important, though.

“Insure kids for just a burial policy and hope you don’t ever have to use it,” Sullivan said. “But life is not always fair.”

The bottom line with life insurance, though, is to at least have a little.

“A good rule of thumb would be (that the amount of life insurance coverage be) eight to 10 times a person’s income,” Trosclair said.

There are things to beware of when purchasing a policy.

“Make sure you’re dealing with a reputable company or agent,” Trosclair said. And, he added, “Clients need to be leery of replacing their life insurance with another

company without first determining if it’s worth their while to do so.”

The key to life insurance is to protect a family and a person’s standard of living.

“You just never know,” Trosclair said. “That’s the uncertainty about it all. A lot of people when they’re young don’t realize their own mortality.”

Contact MBJ staff writer Elizabeth Kirkland at ekirkland@msbusiness.com or (601) 364-1042.


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