The Game of Life: Assessing Your Insurance Needs
An essential component of any personal financial plan, life insurance is about more than dying -- it's about peace of mind and financial security.
Life insurance provides for a variety of needs for both individuals and families, ranging from replacing income due to an untimely, unexpected death, to mortgage protection, coverage of education costs, consumer debt or final expenses, and estate planning.
By Melissa Martin
Alfa Life Insurance Corporation, a division of the Alfa Group of Companies, offers competitive insurance products available for purchase through a team of highly trained, professional agents.
Despite the harsh economic climate, Alfa Life experienced consistent growth during the past decade. To date, Alfa Life has more than 300,000 policies providing protection to customers in Alabama, Georgia and Mississippi. As a result of this growth and strong financial position, A.M. Best recently affirmed Alfa Life Insurance Corporation's financial strength ratings of A+ (Superior). A.M. Best is the leading provider of ratings and financial data for the insurance industry worldwide.
Since life insurance is such an important financial investment, a leading concern among potential clients is knowing the right time to buy. The answer? Evaluate your insurance needs at each life stage you cross.
"As parents, we found that the earlier you purchase a plan for your child, the more affordable the rates," said June Strickland, Manager of Life Processing for Alfa Insurance. "When our boys were young, my husband and I purchased a policy for each of them. Not only were they covered growing up, but the policies have accumulated cash value -- something the boys will be able to use in the future. While affordability is a great benefit, the peace of mind gained by preparing for your child's future is priceless."
Suggestions of other life stages during which it's smart to invest in life insurance include: after graduation, when financial liabilities begin to accrue; after marriage, when concern extends to another person; after job promotions, when finances are stronger; and after starting a family, when ensuring loved ones are protected and provided for becomes a priority.
Another great time to invest in life insurance is when you purchase a home. "Whenever you decide to invest in life insurance, it's important to communicate with your agent in order to evaluate your financial situation and update your policies in relation to your needs," Strickland said.
"I was always told that once you purchase a home, the next step is to purchase life insurance," said Michelle First, an Alfa policyholder. "After buying my first home in February, I shopped around for the best price on term life insurance. Because I am in my early 20's, I figured now was the best time to buy because rates are so much cheaper. If something should happen to me within the 30 years of my life insurance term, my family will be taken care of. Having life insurance suppressed a lot of worry -- burial/cremation costs, house payments, or if my future children will be able to go to college. So when I die, the last thing my family will need to worry about is money."
Knowing when to buy life insurance is important. Equally important, however, is knowing what to buy. Though many shoppers can estimate how much life insurance they think they will need, an Alfa agent can provide the most accurate assessment of coverage by having customers complete a Life Insurance Needs Analysis. Alfa Life offers several different plans of insurance to meet every customer's needs, including term insurance, universal life insurance, permanent insurance and annuities.
Term insurance offers basic life insurance coverage on the life of the insured for a specified period of time and has been the most popular plan of insurance sold by Alfa Life for the past several years. Alfa offers term insurance for 10, 15, 20, 25 or 30 years.
Another term plan Alfa offers is the Return of Premium product, which provides life insurance coverage on the life of the insured for a term of up to 20 years. At the end of the 20-year term, Alfa will return the sum of the base annual premiums and policy fees provided the insured is living and the policy is still in force.
Another popular plan of life insurance offered by Alfa Life is the universal life product (UL), which offers flexibility for the policyholder as needs change during a lifetime. For example, both the volume of insurance and policy premiums may be changed within certain limits as needs change. UL policies may also accumulate cash value over time that may be borrowed against, withdrawn or used to pay premiums. Alfa's UL policy currently pays a competitive interest rate of 4.5 percent.
Alfa Life offers two types of permanent insurance: ordinary life plans and interest sensitive policies (ISP). Ordinary life plans may be purchased for amounts between $5,000 and $15,000, have limited underwriting and are designed to assist with final expenses or burial costs. The ISP product was Alfa's second most popular plan in 2009. Similar to the universal life plan, ISP's also accumulate cash value over time that may be borrowed against, withdrawn or used to pay premiums. This product currently pays a competitive interest rate of 4.5 percent.
As both term and permanent plans were the top two products sold in 2009, it's important to understand the benefits of owning both. While a significant benefit in owning a term policy is its affordability, customers should be aware they are not lifelong policies. Permanent policies, on the other hand, are just that - permanent. While premiums for permanent plans are higher, the benefits of their longevity outweigh the price difference.
Often, many financiers tell customers to "buy term and save the difference" - a common misconception about life insurance. The basic premise behind this idea is that permanent insurance is too expensive and shoppers should just buy term coverage and invest the difference in a savings account. This misconception appears sensible at first glance, but shoppers should consider three fallacies of this notion before doing anything:
(1) The earnings on monies invested in a savings account are taxed.
(2) Investing is risky. If the market declines, so do the value of investments.
(3) Planning to invest money and actually investing money are very different things. In the game of life, plans don't always work out the way they are expected to.
If you haven't already done so, give your Alfa agent a call. Trust in the financial strength of Alfa Life and rest comfortably knowing that your loved ones are provided for.