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Life Insurance: Protection with Benefits
Buying life insurance is rather like buckling your seat belt. No one plans on getting into an accident when they drive, but most people choose to be prepared in case it happens. Despite the analogy, this article is not meant to scare you into buying life insurance, or buckling your seatbelt for that matter. Rather, it's meant to illustrate how protecting your family's future can be a sound decision which also benefits you.
In order to answer the many questions involved with buying a life insurance policy, YOU Magazine sat down with one of the country's leading agents, Todd Gindy, for an in-depth analysis of the subject.
Gindy begins our interview by pointing out that discussions of life insurance as a whole tend to deal in generalities, which don't always hold up when applied to an individual's life. He says understanding that everyone has a "unique" situation is the key to making the right choice for a policy.
He states that the first step is to figure out how much insurance you require, citing that many people make the mistake of choosing the type of policy before determining the coverage they need. He says, "When you die, nobody asks what kind of insurance you have. They only ask how much you have."
According to Gindy, putting a number on your particular need is one of the areas where a qualified agent can really help. But, as a general rule, he says you want to think about replacing the income of the insured, while keeping in mind your family's specific needs as well as the rising cost of education and inflation in general.
Types of Policies
"Rarely does one size fit all," says Gindy, referring to the multiple life insurance options available. He says term policies are simple in design and, therefore, widely understood. In a nutshell, term insurance provides a desired amount of coverage over a specific amount of time and for a fixed price. If you were to die during that time, the policy would be paid in full to a designated beneficiary.
According to Mr. Gindy, the upside to this type of policy is the affordability of the protection, especially for those who are younger. He says that, at the very least, it's a cost-effective way to do the responsible thing on behalf of your family. The downside to this policy, however, is what happens when the term expires. Once the time period runs out, so does the coverage. Gindy states, "It's a protection plan with an expiration date, plain and simple." Finding a new term policy for individuals later in life can be a very expensive proposition.
Whole life policies, on the other hand, can provide lifelong coverage at fixed premiums. These premiums, however, are significantly higher than with term insurance because in addition to the "pure protection", whole life policies accumulate an equity value. This equity grows tax deferred and earnings can be tapped into, tax-free, as long as certain guidelines are followed. This cash value often provides a policy-holder with the option of not having to pay premiums out of pocket. Once the interest earned is sufficient to pay the premium, the protection stays in force without further contribution. It is for this reason that whole life policies are referred to as "permanent". The coverage can stay in force for your entire life.
Another benefit of whole life is it offers you the ability to spend the policy's equity while still maintaining some, albeit reduced coverage. Determining how to best utilize a policy's cash value or death benefit is an option that simply does not exist when you only buy term.
When to Buy & When to Modify
Gindy says there are many ages/life-stages which require "special attention" in terms of either buying insurance or modifying your policy. Those who are in their mid-20s, recently married, or about to become pregnant all fall into the same category. He says that this is the point when you need to really think about providing for loved ones if the worst case scenario were to occur.
The mid-40s are another important life stage according to Gindy. At this point in life, your earnings have increased and, most likely, so have your expenses. College tuition could be in the picture as well as a larger home. During this time, there may also be a need to upgrade your insurance protection.
From the mid-50s on, life insurance becomes extremely important. Due to the advancement of modern medicine, people are living longer. This should be considered in terms of what a surviving spouse or beneficiary would require in terms of income replacement. Life insurance can also be a form of retirement income. Given the unpredictable state of social security, you can never have too many income streams.
Gindy, a family man himself says, "Life insurance of any kind is the ultimate in buying peace of mind." But he cautions people about purchasing the plan through the Internet or doing it without an agent. He says, "When I want a mortgage, I hire a loan professional. And when I want to buy property, I hire a real estate agent." He encourages everyone to "Find someone you trust and have them help you." He adds, "At the end of the day, you get what you pay for."
Todd Gindy is a 15-year veteran of the life insurance business and is currently a top agent at Northwestern Mutual Financial Network located in Encino, California. He is a member of The Court of the Table, an organization representing the top agents in the country. He is a recipient of the National Quality Sales Award for the last six years and is also a member of The Northwestern Mutual Forum, representing the company's top agents nationwide. He can be contacted via email at Todd.Gindy@NMFN.com.
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