Ben Franklin’s old adage, “Don’t put off until tomorrow what you can do today” seems especially fitting when considering life insurance. Life insurance is one of those topics people tend to brush aside until they need it. Yet, as Knights of Columbus insurance agent John Mahon tells The Leaven, purchasing life insurance is a discussion all families should have.
Q. Why should someone purchase life insurance, especially if they are single and have no dependents?
A. Having life insurance guarantees future insurability. Health issues usually occur as you age. Younger clients qualify for better rates (Premier Class) because they are generally more fit and less of a risk for the insurance company. As you get older, your needs change and usually increase. You may start the normal life cycle: graduating high school or college, taking that first job, getting a car loan, getting your first mortgage, getting married, having children, etc. Having life insurance also takes the burden of burial expenses off the table if you experience a premature death.
Q. Can you describe the importance of life insurance when you have a spouse and young children? Most people don’t consider having enough to cover the house, college, etc. It’s more than just funeral considerations.
A. When we do an extensive financial needs analysis for our clients, it is crucial to examine their immediate cash needs, funeral, mortgage, debt liquidation, emergency fund, education fund and day care expenses as well as future income (Human Life Value). Most people underestimate their human life value. When dealing with a premature death of the breadwinner, income needs is usually the area most people overlook or miscalculate. Clients need assets to replace income for their working years or beyond. Sources like Social Security benefits and group insurance fall short in the planning process. The easiest way to create assets for immediate needs and income replacement is life insurance. Life insurance creates an immediate estate. That’s the beauty of it.
Q. When should an individual purchase life insurance?
A. There is never a bad time to purchase life insurance, but qualifying is easier when you are healthy and less costly when you are young. If possible, life insurance should be purchased at birth by parents. Guaranteeing future insurability is important and making sure we have enough for any unforeseen tragedies that might occur to our children. As a young adult, parents should purchase enough term insurance to offset any college loan liability they sign up for. As an adult, it should be purchased as soon as possible when you enter the work force. Financial planning begins there. Early financial planning is beneficial to young adults. Most people overlook the basic financial pyramid. Cover the basics first then move on to retirement planning and investments.
Q. How should he/she decide how much to purchase?
A. An insurance agency comprehensive needs analysis can determine a person’s current and future needs. It’s not a one-size-fits-all approach. It’s a well-planned, tailored and analysis process for each individual family. Agents will educate clients about financial products that are available in the marketplace that will fit their personal, individual, current and future planning needs.
Q. What happens when you live past the point of coverage? Should you try to get more?
A. Annual policy reviews help clients understand when to adjust coverage and the options they have going forward. If you live past and need insurance long-term, permanent life insurance works really well for the long haul.
Q. What should you consider when comparing rates like they show on TV?
A. We call it selecting a company you want to do business with. Keep in mind that there is a lot of confusion on rates. All companies are not created equal. You should be looking for a highly rated company. AM Best and Standards & Poor are two rating resources you can use to evaluate who you want to do business with.
As a Catholic, I think it’s important for you to know the company investment philosophy you plan on doing business with. Is the company investing in anything that is contrary to our faith? For example, some companies hide the fact that they invest in companies that fund or support abortion.
Q. And is that a good way to buy life insurance? Or should I consult an actual agent?
A. I believe you get what you pay for when it comes to buying financial products — or any purchase for that matter. Purchasing online is cold and can be frustrating, especially when dealing with a death claim. I would never put my wife in that situation. I want someone in the toughest life-changing event that my wife will ever experience (losing a lifelong partner or a child) to assure her that she will not experience any of the financial burden or financial grieving and help her through her spiritual grieving as well. I want a fellow Catholic at my kitchen table when I am gone helping my family. That is very important. Consider a professional Catholic agent who will work with you in the most ethical way possible.
Q. How has your advice to your clients changed as a result of the pandemic, if it has?
A. Nothing has changed as far as our process. It is just a different platform. We are doing face to face and virtual meetings. If anything, the pandemic has put a sense of urgency on people to get their households in financial order.
Q. What do people misunderstand about life insurance?
A. Most people think it’s an expense. It’s not. There are a variety of life insurance programs that are used for a variety of reasons. Life insurance is an expression of “love for the family.” It is a financial tool today that can have a big impact on families for generations. It is a tool that can leave a legacy to your family, children with special needs, charity, an alma mater, your parish or diocese, replace Social Security income on the first to die, and more. It’s not just for burial planning.
Q. What other questions should someone buying life insurance ask?
A. To name a few:
• Is your company going to be there when something happens to you or a family member?
• Under what circumstance has your company ever not paid a death claim? How long is the claim process?
• What would prevent me from attaining life insurance?
• What is your company’s AM Best and Standard and Poor’s rating?
• Do you know where your company invests its monies? Is there any investment deemed contrary to our Catholic values?
• Do your products come with guarantees? What are some features that you recommend?
• Are your term plans guaranteed renewable and convertible?
John Mahon is a regional agency executive consultant and northeast general agent for Knights of Columbus Insurance Mahon Agency in Topeka. He and his wife Ruth belong to Mother Teresa of Calcutta Parish in Topeka, where John served on the parish finance committee for several years.