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Life insurance. It’s an emotional topic that is tough to discuss with our clients here in San Antonio, Texas and beyond, but very necessary and critical to ensure their loved ones are not burdened with financial ruin.
According to a study done by LIMRA in 2020, nearly 41 million Americans have no life insurance at all and as a whole, U.S. life insurance ownership has fallen 9% over the past decade. These are troubling numbers indeed and the global pandemic that is COVID-19 has been a wakeup call for many that the time is now to secure life insurance.
What Is Life Insurance?
First, let’s get some basics down. Basically, life insurance is an agreement between you and the insurance company, whereby in exchange for your monthly premium payments, the insurance company will pay a sum of money (death benefit) to your loved ones when you pass away. Life insurance is mainly utilized to cover loss of income, funeral expenses, debt and other financial matters that could arise.
What Is The History Of Life Insurance?
The concept of life insurance is not as recent as one might believe, but in reality, dates back to ancient Roman times. A burial club was instituted among Roman troops, so in the unfortunate event of the death of a member, other members would fork up the money set aside to pay for the funeral. These burial clubs later evolved to include a stipend payed to the survivors of the deceased.
The first recorded life insurance policy dates back to London, England in 1583. The parties entailed a citizen and thirteen merchants, whereby the citizens payed a 1-time (premium) of 30 pounds and if he passed away within 1-year, the merchants would pay his beneficiaries a death benefit of 400 pounds.
Besides being in the insurance business, we are history buffs here at The Harrin Group and recently acquired at auction a life insurance policy that dates back to 1858. It was a whole life insurance policy that was issued by the Mutual Life Insurance Company of New York and the annual payment was $317.30 for $10,000 worth of coverage. To give you an idea of how expensive this was back then, we used an inflation calculator that goes back to 1913, and even then, it would be $8,342.11 a year in today’s money (2020)! Talk about a pricey life insurance policy!
What Are Some Common Life Insurance Terms?
Policy: the basic contract between you and the insurance company
Premiums: the monthly or yearly payments that you make to the insurance company, in exchange for your policy
Policyholder: the owner of the policy (the one insured), but you can buy a policy for another person
Death Benefit: the money payed out when you pass away
Beneficiaries: the people you choose to receive the death benefit of your policy (such as your spouse or children, but it can be anyone you name)
What Are The Main Types Of Life Insurance?
Term Life Insurance:
Term life insurance can provide low-cost coverage for a specific period of time (the “term”) –most likely during an individual’s peak earning years when death can cause the greatest financial hardship. The common term periods usually last between 10-30 years and you’ll pay a monthly premium during this time to keep the life insurance policy active. If you die while the policy is still in-force, your beneficiaries will receive the death benefit amount tax-free. Once the term is up however, you will no longer pay the premiums and your policy then expires. Term life insurance is also a good option for covering needs that aren’t permanent. For instance, you may decide that you only need coverage until your children graduate college or a particular debt is paid off, such as a mortgage, or a business responsibility is fulfilled.
If you buy a term life insurance policy and then later realize that you still have a need for life insurance, you can either renew your term policy or (depending on the insurance policy’s rules about conversion), convert it to a different type of policy. If, in 10, 15 or 20 years you’re still healthy according to the company’s underwritten standards, you might re-qualify at a reasonable rate. But if your health has deteriorated, you may find that it’s too expensive to renew your policy or you may not even re-qualify.
Some variations of term life insurance can entail policies such as “level term”, whereby the premiums you pay remain the same for the life of the policy, or “decreasing term”, whereby your premiums remain the same, but the death benefit amount will decrease each year. Another is “return of premium”, which allows you to get your premium payments back at the end of your term. We work with many top-rated life insurance companies such as North American Life, and Nassau Re, which offer innovative term-life insurance product, some of which offer living benefits, such as getting a portion of the death benefit accelerated to you while you are alive, if you acquire a critical, chronic or terminal illness. See the short video below on how living benefits might work for you ⇓
So, when considering a term life insurance policy, be sure you carefully consider your needs and how they may evolve financially down the road. If your needs remain temporary, then term life insurance may be right for you. But, if you think there’s a possibility that you might need the coverage for the long run, then remember that renewing your term policy after it expires or buying a new term policy at that time, may make coverage more expensive due to your age, health status or other factors.
Permanent Life Insurance:
Unlike term life insurance, which addresses more temporary needs, permanent life insurance is designed to provide life-long financial protection. Because permanent life insurance policies are designed and priced to keep over a long period of time, this may be the right type of insurance for you if you have a long-term need for life insurance coverage. “Permanent insurance” is generally a catchall phrase for a wide variety of life insurance products many of which includea cash-value feature. Within this class of life insurance, there are many different products, including universal life insurance and indexed universal life insurance.
Despite what many people may think, the need for life insurance often remains long after the kids have graduated college or the mortgage has been paid off. If you died, your spouse would still be faced with daily living expenses. And if your spouse outlives you by 10, 20 or even 30 years—would your spouse be able to maintain the lifestyle you worked so hard to achieve, without the death benefit of life insurance? Would you be able to pass an inheritance on to your children or grandchildren? These are questions to consider carefully when determining what type of life insurance fits your needs.
The necessity for life insurance hits close to home here in San Antonio, Texas for us at The Harrin Group and we wanted to share with you (2) true and sad accounts of how life insurance could have prevented chaos and heartache for the families of those mentioned.
Story #1– Locally here in San Antonio, Texas, we oftentimes hear from folks that life insurance is only needed for those in their elder years, and young guys and gals shouldn’t have to worry about life insurance. What a waste of money some say. Unfortunately, this is absolutely false, as Mr. Death does not discriminate, whether someone is 24 years old or 84 years old. In the case of a New Braunfels, Texas football coach, that door knock by Mr. Death would be at age 33.
He had (2) children, ages two and four, and a young wife who worked hard to keep the house in order. The football coach was running plays one hot summer day, suddenly had a stroke on the field, and was immediately rushed to the nearest emergency room, where doctors later informed him that he had suffered some minor paralysis, as a result of the stroke. With orders to do light duty on the field, and therapy around the clock, it seemed like the tide was turning for this family of four, but tragically, the young coach had a relapse shortly thereafter and died from the initial stroke. The community was in shock, and immediately instituted fund raisers to help pay for burial costs, as his only form of life insurance was a meager policy from the school district, that barely covered the casket.
And to make matters worse, the widowed wife contracted breast cancer a few years later, leaving behind her only children to relatives to take care of them. Life insurance would have been so crucial in this case here in Texas, as the widowed wife could have had a influx of tax-free cash to pay her deceased husbands bills and funeral costs, as well as leaving the children money behind, when she eventually passed a few years later.
Story#2– This tragic event, is a personal story of the owner of The Harrin Group: Barry Harrin. Mr. Harrin was living in San Antonio, Texas with his wife and three children under 18 years old and received tragic news one autumn day that his 85 year old widowed mother, had passed away in her home, in South Florida.
Barry rushed his family on the next (over-priced) flight out of San Antonio, Texas and was forced to charge everything to his credit card. While on the flight, Barry remembered that his mom had always told him before that she had a $25,000 life insurance policy, so that eased tensions somewhat, that is until he landed. While listening to the funeral director, with his practiced sad-face in the casket showroom, he convinced Barry and his family that his mom deserved a nice casket, the very best, with the finest finishes and touches. As Barry handed over that credit card once again, he felt the financial hit especially hard, as his sister and other relatives clasped onto their Coach purses, while crying poverty, not contributing a single dime for funeral costs, leaving the heavy burden upon the father of three young children. But Barry felt a sudden rush of relief when he remembered his mom had that life insurance policy, so it will all be ok, right? Unfortunately for Barry, this recollection turned out to be right from The Twilight Zone and in reality, upon looking at the important documents in his mom’s sole apartment, a life insurance policy was found, but had lapsed years before, due to non-payment of the policy premiums.
You see, Barry’s mom lived though the infamous Great Depression, and believed the only person with access to her bank account should be her solely. She had sent monthly checks to the life insurance company for years, but as her Alzheimer’s got considerably worse, she simply forgot to pay the premiums, and therefore, lost her coverage. This came as another gut punch to Barry, who had his own version of the Great Depression, which resulted in years of financial turmoil and an angry wife, who was tired of being stressed with money problems. Plain and simple, if his mom had the $25,000 policy and payed the premiums, the funeral would of been payed for, and Barry would not have been stressed for years to come and would of not have gained so much gray hair either.
In the end, there are a variety of life insurance policies that we can provide. The kind of policy you choose depends on your needs. That is why we work hard here in San Antonio, TX to customize the right life insurance policy for you and your family’s needs, whether it is burial insurance or cash accumulation that you can access while you are alive.
Whole Life Insurance:
Whole Life insurance provides permanent protection for the whole of life – from the date of policy issue to the date of the insured’s death, provided that premiums are paid. Premiums are set at the time of policy issue and remain level for the policy’s life. Unlike term insurance, whole life combines insurance protection and savings or cash value which builds over time. Cash value build-up may provide a source for living benefits, for example, helping pay off a mortgage, or a child’s education, or cash surrender value if the policy is ever canceled.
These products are continually changing and we can provide you with the latest information and policies available!
Universal Life Insurance:
Universal Life (UL) offers flexible premiums that can give you the option to make higher premium payments when you have extra cash on hand or lower premium payments when money is tight. Once the policy has enough cash value, the flexibility of UL insurance generally allows you to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums of the policy guidelines. You also can reduce or increase the death benefit (which may reduce or increase your premium payment) should your needs change.
In addition to the death benefit, another important characteristic of universal life insurance is a feature known as cash value or cash-surrender value. These types of policies can earn interest and build cash value over time, as well as provide a death benefit to your loved ones.
When you pay your premium, administrative fees, applicable rider charges and other insurance, costs are deducted from the amount you paid. The balance of your payment is applied to your cash value account, and continues to build with each premium payment. The cash value account may also earn a current interest rate offered by your insurance carrier. Generally, over time your policy can develop a cash value available to you in the form of a policy loan or partial surrender.
Benefit features like a no-lapse guarantee can be very useful to help protect your policy. With an ordinary universal life product, the policy could lapse under certain circumstances (e.g., interest rates fall below projections, insurance costs or administrative expenses rise, etc, which can affect your ability to make premium payments). With a no-lapse guarantee, you’re guaranteed that the policy won’t lapse for a specified period of time as long as premium payments are made within the time frame outlined by the company.
Indexed Universal Life:
Indexed Universal Life insurance (IUL) is permanent life insurance that offers death benefit protection when loss of life occurs. Like other forms of permanent life insurance, your premium payments may earn interest and grow the cash values of your policy.
What differentiates IUL from other permanent life insurance is the way interest is credited to the policy. In addition to the company offering its own declared interest rate, IUL also offers an interest option linked to the movement of a selected stock market index over a specific period of time.
The manner in which interest is credited to your IUL policy gives you the potential for strong cash value accumulation. A key benefit to remember is that it offers protection in a poorly performing market. With IUL, you don’t participate directly in the stock market and the credited interest rate is never less than zero percent, guaranteed.
A properly structured IUL can provide you with a multitude of important benefits and help secure your retirement. Here are just a few!
- The potential to achieve large annual cash accumulations, while both your principle AND your gains are never at risk
- Penalty-free, tax-free access to your money
- Tax-free disability and long term care type benefits
- Tax-free death benefit
Below is an excellent short video summing up a great retirement technique: “Index Universal Life Insurance” (IUL) that The Harrin Group offer’s to our clients here locally in San Antonio, Texas, along with California and Florida respectively. Contact us today and add this to your retirement portfolio.
Final Expense/Burial Insurance:
A final expense plan, also known as burial insurance, is designed to pay for the costs associated with your death. The amount a policy will pay out, depends on how much you pay in premiums over the lifespan of your plan. The beneficiary of your coverage can use any payout to meet your funeral costs, pay probate, and clear any outstanding debts you leave. If you pass away without any savings or insurance, someone else will have to fork up the money to pay for your funeral. This is the reality and one that we try to explain to folks we meet in Texas all the time.
These plans come in the form of two options, term life or whole life. Term life will provide a payout if you die during the term of your plan, like for instance 20 years, and whole life will cover you for the rest of your life. If your term policy expires without a claim being made, you will have to take out a new policy to keep coverage and the older you are, the higher your premiums will be.
With funeral costs now in the range of $8,000 to $10,000, it is important to have coverage when the inevitable happens. The good news is that you will not have to go through a medical exam to get final expense/burial insurance. This might be a good option for you if you are having trouble qualifying for life insurance due to your current medical conditions. For instance, if someone has had a recent heart attack, getting traditional life insurance would be quite the challenge with the very strict underwriting process. Luckily, we work with carriers who can’t turn you down for health issues like these and are able to get some sort of coverage in place for our clients. Contact us today here in San Antonio, Texas, to secure your final expense/burial insurance and ensure your family will not be devastated financially by the loss of a loved one.
Did You Know?
As you will hear in the short video below, there are over 100 million Americans without life insurance. We at The Harrin Group unfortunately hear stories all the time of families in and around San Antonio, Texas, resorting to selling BBQ plates or starting a “Go Fund Me” to help cover a loved one’s burial cost’s and debt’s. As actor Anthony Anderson says correctly, “we insure our high definition big screen television, but not the person watching”. Reach out to us today and we will be happy to find the best life insurance product that fit’s you and your family’s needs and safeguard your future, as life can change in an instant.
Source: Alliance Group, Life Happens.org
