Have you been contemplating purchasing life insurance, but aren’t sure if it’s something you really need or if you can afford it? USAA certified financial planner, J.J. Montanaro joined me for an interview recently to discuss how much life insurance coverage we all need, what age is the right age to purchase life insurance, why it’s often considered retirement insurance, and if it’s ever a good idea to purchase life insurance through your employer.
Candace Rose: What’s the important question that people should ask themselves with respect to life insurance?
J.J. Montanaro: “Well, to me, the most important question is ‘Do I have enough coverage?’ When they surveyed the landscape of their life and look at the debts and obligations they have and survivor income they want to provide, the college that they want to fund for their kids – life insurance is a great way to be able to meet those obligations and take care of the ones you love. It’s not necessarily how you do it, the type of policy…the real question is ‘Do I have enough to accomplish what I want to accomplish?”
Candace Rose: Why should life insurance be viewed as retirement insurance?
J.J. Montanaro: “Well, when you look at the goals that we have, the goals that I see as a financial planner, often at the top of the list is the idea of accumulating a nest egg to allow you to do whatever it is that you want to do, and I use this term loosely, in retirement. If we’re in the middle of our working lives and we’re working on that nest egg but we haven’t got to the point where we want to get, then life insurance provides a way to fill that gap. If something happens to me, then I can take care of my spouse and let her achieve the goals that we had together. I think if you make that leap life insurance can really be an important tool on the road to retirement. Hopefully one we can take advantage of.”
Candace Rose: At what age should people look into purchasing life insurance?
J.J. Montanaro: “Candace, to me it all comes down to the financial obligations that they have and so you would think for example somebody who is young and just starting out, they may not have a big need for life insurance, however as their life changes so too will their need for life insurance. I encourage people to look at their life insurance whenever there is a big event, whether it’s a new job, a new baby, a new house, retirement – anything that is going to have a big impact on your life in general probably is going to impact the need for life insurance.”
Candace Rose: What are different types of life insurance, and in what situations are they the right choice?
J.J. Montanaro: “If you break it down, Candace, life insurance in terms of types, I think you can break it down into two main categories. The first one would be term insurance, and the second would be permanent insurance.
With term you will hear it called 10 year level term, 20 year level term, group term. On the other hand, permanent would go under names like whole life, universal, variable life. What’s right for you depends in large part on what you’re trying to do. If you go back to the different reasons we talked about for life insurance, if it’s a temporary need and in a lot of cases it is because debts will be paid off, kids will grow up, college will be paid for. Those things that go away are ideally suited for term insurance. On the other hand, estate planning, goals, survivor benefits, and other things like that are more permanent needs and might be covered better by permanent insurance.”
Candace Rose: Can the annual premium ever increase?
J.J. Montanaro: “When we talk about term insurance, I’ll use an example of a 10 year level term policy. With that type of policy what you get is a level premium, so it’s the same premium, same death benefit for that 10 year period. Now, if you need coverage beyond the 10 years, in all likelihood the premium is going to go up, the benefit is going to go down or you’re going to have to go get a new policy. It depends on the time frame you’re talking about, but the premiums can change over a lifetime for sure.”
Candace Rose: Is signing up for life insurance through an employer ever a good idea?
J.J. Montanaro: “Candace, in terms of your employer and life insurance, I’m actually a big fan of that because for most of us that might be the easiest way to get insurance. We’re getting to that point in the year where people are making their annual elections and typically one of those elections is life insurance. Usually through your employer you can get a nice amount of coverage at a reasonable price, so I think that is a great place to start. What I worry about sometimes is that if you have all of your coverage with your employer, what happens when you change jobs or what happens if you lose your job? You need to understand what the rules are around that with your specific employer to make sure you’re playing accounts for that.”
Candace Rose: When would it make sense to cancel or reduce coverage?
J.J. Montanaro: “In terms of how your coverage changes or canceling or reducing it, Candace – your life is going to change as we talked about earlier and over time the reasons you have insurance could go away. Like I said, the kids are going to be financially independent at some point and time, the mortgage is going to be paid off and so as your life changes there may be opportunities to cut back your life insurance.”
Candace Rose: Do you have any additional tips or information you’d like to share with us?
J.J. Montanaro: “I think the biggest thing is not to be intimidated by life insurance, by the big numbers that come in terms of the amount of coverage and not to overestimate the cost because when we talk especially about term insurance it’s usually affordable at a reasonable price. I would encourage people not to get intimidated by the process or by the potential price and really take a look at their situation, evaluate what they need and that’s the place to start. Hopefully this September will be a kickoff point for a lot of folks as they look at their own situation.”
Candace Rose: Well, thank you so much, J.J. Where can we all go for more information?
J.J. Montanaro: “For more information and even calculators like we talked about today, folks can visit USAA.com.”