By Jon L. Ten Haagen
Q: I am getting married soon and believe I should look into insurance policies to protect my new family. Can you help me get on the right track?
A: When you buy life insurance, you’re making a bet with the insurance company. You are betting that you’re going to die sooner than they think you’re going to die.
Insurance companies would love to sell insurance to someone who’s going to live until the ripe old age of 100, because the insurance company can collect the premiums for a longer time without having to pay out any money.
The proceeds of your insurance policy should serve a useful purpose. This purpose can be as minor as providing sufficient money for your funeral. It can be something that will enable your widow(er) to live in a style to which he or she has become accustomed. It can make sure your children are financially comfortable while they grow up without a parent. It can provide protection in the event of the death of a partner in a business, or a key employee replacement.
Providing sufficient funds to enable your family adequately is a useful purpose. Donating money to charity is another useful purpose.
Choosing The Right Insurance: How do you choose what insurance is best suited for your purpose and how do you choose a company to provide the insurance? There is term insurance which covers you for a certain term (10, 20, 30 years). There is universal life which is a permanent insurance which will cover you up to 120 years of age as long as you continue to pay the policy each year. There is whole life insurance which has an internal savings portion to it. They are listed from the least expensive to the most.
Here are a couple considerations.
First, what’s the purpose of the insurance? If it’s for a combination of savings and insurance, then perhaps a whole-life policy would be best. It is the most expensive policy to buy.
If it’s for a “key man” policy – to protect your company should a key employee die – then perhaps a term-life product would be your best bet.
If you are just starting out with a new spouse, house and child then perhaps tem insurance is right for you. You get the most coverage for the least amount of money. Once you get established and have a better cash flow you should consider a more permanent policy, like Universal Life.
As you can see there are a number of different types of policies available to you. The key here is that before you can make a reasonable decision on the type of insurance you need, you have to understand the reason for the insurance and what it will do for you.
Now that you know why you want the insurance, it’s time to choose the company/agent who’s going to provide it for you. You want to use a company has a full complement of products and that will still be around when you die, regardless of how far into the future that may be.
You can use a broker, who represents a variety of companies. You can use a captive agent, who’s restricted to the policy offerings of his own company. Whichever way you go, make sure the broker/agent probes to determine your needs and makes his/her decision based upon your needs rather than upon their own commission considerations. Seek out a CLU or CFP who has a fiduciary responsibility to look out for your best interests.
Lastly, review your insurance policies every 3-5 years. New policy offerings come out every few years and your circumstances and situation changes – be sure your policy still does what you need it to do when the time comes.
Jon L. Ten Haagen, CFP, of Huntington, is an Investment Advisor Representative offering securities and advisory services offered through Royal Alliance Associates, Inc., member FINRA/SIPC and a registered investment advisor. Ten Haagen Financial Group is not affiliated with Royal Alliance Associates, Inc. or registered as a broker dealer or investment advisor.
Disclaimer: This advice is intended for informational purposes only. Use of this column is not intended to replace professional advice. The author, this newspaper and its publisher are not responsible for the outcome of following any advice that appears here.