Businessman Need a Life

Life insurance is important on the personal level, protecting families from hardships in the event of a breadwinner’s death. It also has numerous business benefits.

For business owners, life insurance policies can help keep their company going in the event of a death, either their own or the death of a key business partner or employee. Life insurance can also reduce the chances that the business will be sold under duress, and it can help fund emergencies and business growth.

When speaking with business owner clients and prospects, producers should consider bringing up the following business uses for life insurance:

Liquidation prevention. If a business owner dies suddenly and without life insurance, his family may need to sell off assets quickly in order to pay the bills. These urgent sales often mean that families accept offers that are below market value. Life insurance can prevent this. The policy payout means families can take their time making business decisions and carefully consider all offers and options.

Key man coverage. If a business partner or key employee dies, what happens to the company? Purchasing life insurance on vital business partners and employees can give organizations the time they need to replace that individual, without worrying about the financial implications for the business. The life insurance payout can also be used by the surviving partners to buy out the portion of the business owned by the deceased partner.

Cash accumulation. In addition to providing protection, some life insurance policies build cash value over time. Business owners can purchase these policies and tap the accumulated cash in case of an emergency, for business expansion, or to supplement retirement funds.

Cancelling Your Life Insurance

Life insurance policies aren't always for life. Whether you have a whole life or a term policy, there are sometimes good financial reasons why you might decide to cancel it.

Giving up a policy isn't an easy decision. Once people decide to buy life insurance, they rarely opt out. Just 5.7% of individual policies were terminated in 2013, the fifth straight year the rate declined, according to the American Council of Life Insurers.

Still, dropping a policy isn't necessarily a bad idea, particularly if you've had a major lifestyle change. But there might be hidden costs, and if you'd like to stay insured, you could have options other than cancellation.

Here are some reasons to consider a change.

You have fewer financial obligations
Most people purchase term life insurance to cover specific expenses, such as to ensure support for children living at home or to help pay their college tuition. Those expenses may decline or disappear over time. As people get older, the original reason they had for taking the life insurance policy may no longer be relevant.

In the best-case scenario, you pay off your mortgage and see your children graduate college around the time your insurance term expires. In that case, you can simply elect not to renew coverage. But if you've miscalculated and would prefer not to pay premiums, speak to your agent. If you have what's called a return-of-premium rider on your policy, you could get a check back if you cancel.

You've experienced a loss of income
Term policies tend to be relatively inexpensive. But if you've bought a whole life insurance policy, you'll often pay at least twice as much, and that could strain your budget if you've lost your source of income.

Unfortunately, cancelling a whole life insurance policy can be complicated. In many cases, you'll lose value if you cancel in the policy's early years. There may also be tax consequences for cancellation, and buying a new policy in the future will be more expensive.

Job loss can also bring the importance of life insurance to new height and many maintained his policy during a recent period of unemployment. Life insurance is really crucial for people who are in transition. If you'd prefer not to cancel your policy during a tough time, you do have options. "You may be able to reduce the face amount rather than dropping the policy outright.

You're no longer happy with your plan
Some consumers cancel a life insurance plan because they find they can get a better deal elsewhere, especially on term life insurance. It's gotten a lot more competitive in the last few years. People [are] getting new policies at better rates.

Others might wish to switch from whole to term life insurance. Often [whole life insurance policies] are dropped when people fail to see the 'gains' materialize that they thought would come out of them.
There seems to be a general misunderstanding … about when the cash-value life insurance plans will actually begin to develop 'cash' in the cash account. Swapping plans? Read your new policy carefully before committing, and never cancel a policy until you're 100% certain the new policy has gone into effect.

The bottom line
You might cancel your life insurance for other reasons. Changes to your personal circumstances, including business failure or divorce, can affect your need for coverage.

But if you do have a need, and you can afford it, there's no substitute for the right amount of life insurance. Keeping your policy active should be a priority – and for most policyholders, it is. During the recession, lapses didn't increase dramatically, even though unemployment nearly doubled.

Captive or Independent Agent

When shopping for life insurance, the type of agent you choose could determine the price you pay.
Generally, there are two kinds of life insurance agents — captive and independent. Nearly half of new individual life insurance policies are sold by independent agents, with captive agents accounting for about 41%, direct marketers with 4% and other channels accounting for 6%, according to the most recent figures from the Insurance Information Institute.

A handful of life insurance companies depend exclusively on captive agents, but most rely on independent agents or a mixture of captives and independents. Both types of agents can provide the kind of quality expertise you need to make one of life’s important financial decisions. But there are some big differences between the two.

Captive agents
Captive agents work directly for a single life insurance provider and are limited to the products of that company. For example, if you call a captive agent for State Farm, he or she will market and try to sell you only State Farm products. These agents’ commission, if they have one, is set by their insurance company, and they are paid by that company.

On the plus side, these agents are experts in what their insurance companies have to offer. But they cannot help a client who doesn’t need or qualify for their company’s products. And captive agents usually have quotas to hit to keep their job and earn bonuses. Although that’s not terribly different from independent agents, you might feel a bit more pressure to buy car insurance from a captive agent when all you really want is term life.

Independent agents 
Independent agents, meanwhile, work for themselves and not any particular insurance company. They sell policies from a variety of life insurers, not just one, and make most of their money through sales commissions and bonuses from the carriers.

Independent agents can save you some time by getting quotes from a few different insurers, which could mean a better price. However, they may be less objective than you think. Because they make most of their money off commissions, independent agents may push you to buy a policy that gives them a higher commission — and not necessarily a better deal for you.

Which is best?
The type of life insurance agent you choose depends on your needs and your budget.

If you’re looking for multiple quotes from different companies, an independent life insurance agent probably is the way to go. It can save you time and money. On the other hand, some insurance companies may offer policies only through captive agents, and these agents bring a lot of knowledge to the table. You may have to get a few more quotes, but you could end up with a better deal. In some cases, especially if you are a well-informed consumer, you may choose against using an agent entirely and get a life insurance quote directly from the company.

Life Insurance Without Commission

A new rule which allows life companies t
o sell insurance without commissions and financial advice is about to come into force in Singapore.

From April 7, consumers will be able to directly purchase insurance – like lifetime financial protection – from a provider, according to a new rule introduced by the Monetary Authority of Singapore (MAS).

 

As well as the introduction of direct purchase insurance (DPI), the MAS has helped build an interactive web portal called comparefirst.sg which allows consumers to easily compare insurance products sold by different life companies.

 

Both initiatives have been introduced under Singapore’s Financial Advisory Industry Review (FAIR), which aims to stamp out unfairness in the city-state’s financial industry through amendments to the Financial Advisers Act and Insurance Act.

 

Premiums underlining direct purchase insurance – which can be identified by the word “direct” in their product names – are lower than comparable life insurance products because no commissions are charged. MAS said these products will be easier for consumers to understand and come equipped with a factsheet and a checklist.

Natural progression

Tim Searle, chairman of Singapore-based financial advisory firm Globaleye, said his advisers are ensuring their clients are aware of this facility, but that Globaleye clients who have more complex requirements when compared to the mass market would “prefer to seek specialist advice and solutions that transactional type platforms cannot support”. 

 

He said the DPI initiative is a natural progression of things. “The baby boomer money is going to start to dry up and the generation who welcomed a sit down over a cup of coffee with their financial adviser will diminish. 

 

“The new generation is going to need a new approach that comes with a cost benefit, and online platforms will feature heavily in that offering. 

 

“But there cannot be a total replacement by going online since complex financial solutions require a tailored result from a qualified and regulated adviser. Just because I can google medical information doesn’t mean I’m going to take my appendix out myself.”

Purely informative

Meanwhile, the new portal Comparefirst allows consumers to quickly compare the premiums and features of similar life insurance products to help them make informed decisions about which policy to buy and how much coverage to get. 

 

As the portal is purely informative, customers will still need to speak to their financial adviser or the life company to purchase the product.

 

The interactive tool is a collaborative effort by the Consumers Association of Singapore, MAS, Singapore’s Life Insurance Association, and MoneySense. 

Another avenue

Earlier this week, Manulife Singapore announced it is launching two new direct purchase products.

 

Hitesh Shah, chief marketing officer of Manulife’s Singapore-based arm, said the firm is supportive of the direct channel which “will offer another avenue for people to access insurance products and provides additional choice for self-directed and knowledgeable consumers who know exactly what they are looking for.”

 

However, he said experience from other markets has shown that direct insurance sales usually only takes up only a small share of the market. 

 

“Given the complexity and level of customisation in life insurance, we believe most consumers still value the expertise of an experienced financial planner in helping them to make important long-term financial decisions about their future,” he said.

 

“Most importantly, consumers need to ensure that they have sufficient coverage to meet their needs, as research shows that there is still a significant protection gap in Singapore.”

Stages in Life for Insurance

When you’re just starting out on your career path, life insurance may be the last thing on your mind, for good reason.

If you are young and single, you probably don’t need to think about life insurance just yet. Even the Insurance Information Institute, an industry-backed group, says: “In most cases, if you have no dependents and have enough money to pay your final expenses, you don’t need any life insurance.”
But then you get married, buy a house, have a child — and you start to realize there are people who would suffer financially if you died. How do different life events affect your life insurance needs?

Marriage
If you die, your spouse will need at least enough money to cover funeral costs and any taxes and expenses associated with winding up your estate. This generally adds up to $15,000 or more, according to the Insurance Information Institute. Your spouse also may be depending on you to help pay the rent. Maybe you’re covering all the living costs while he or she finishes school. Make sure to designate your spouse as your beneficiary.

Buying a home
Now you have a mortgage that depends on your income. You may want to boost your insurance to help cover that cost.

Having a child
Children are expensive. If you died, your spouse would face the costs of child care, clothing, food, schooling and much more. If you are a single parent, or if both parents died, that burden would fall to a guardian.

As the Insurance Information Institute puts it: “You want to be sure the family has the resources to maintain the home and have all the opportunities you want them to if you are not there.”
Don’t name minor children as beneficiaries, the National Association of Insurance Commissioners warns. Rather, set up a trust or designate a custodian.

Divorce
In the event of divorce, you probably want to change your policy quickly so your ex is no longer your beneficiary. That said, if you’re depending on child support, you may want to stipulate as part of your divorce settlement that your spouse buy a life insurance policy specifically to cover the payments if he or she dies, the National Association of Insurance Commissioners advises. “You should be named as the owner and beneficiary of such a policy to prohibit your ex-spouse from changing the beneficiary name without your agreement,” the group suggests.

Getting a new job
A couple of factors come into play with a new job. For one thing, new jobs often pay more, and your family may quickly come to depend on that extra money. That means you’ll need to boost your life insurance policy to match. Also, were you depending on a policy through your former employer? You may be able to take that plan with you or replace it with one from your new workplace.

Paying off your mortgage
The end of your mortgage payments cuts your family’s living costs significantly. This may mean reducing your insurance coverage.

Retirement
Before punching out for the last time, check with your employer to see whether the company’s group policy is portable. You may be able to buy continued coverage without a medical exam.

Also, retirement is a time when many of us have fewer financial commitments, such as mortgage payments and young children, and we may have accumulated greater savings that would cover costs if we died. If your spouse dies and you remarry, you’ll want to update your beneficiaries, assuming you still carry life insurance.

Sometimes it makes sense to allow your term life policy to lapse when your income and expenses are more limited. Or you may want to consider switching to permanent life insurance, which can act as an investment vehicle.

Some seniors consider “final expense” policies, which typically have relatively small payouts of $10,000 or $25,000 to cover end-of-life costs. These policies may be sold as “guaranteed issue,” meaning that no medical exam is required, but that can add to their cost. Also, final expense policies typically won’t pay the full benefit if you die in the first two or three years of the policy, the National Association of Insurance Commissioners warns.

How Much Life Do You Need

Not many people enjoy thinking about their death, and fewer still even remotely consider the possibility of an early death. Still, one should take the time to think about it, especially when it comes to the financial safety of your family.

Do you have enough money to pay all your debts and cover your funeral expenses? What about taking care of your family after you are gone? Life insurance is designed to create a safety net for your family in the tragic event of your untimely passing. But how much do you really need?

Should everyone have life insurance?
Before we can even consider how much life insurance you should purchase, you need to decide if you really need it at all. Buying life insurance isn’t right for everyone. If you are single and don’t have any dependents, you might not need it. This is assuming you have enough money saved up to cover the cost of your funeral expenses and debts if you do pass away. If you do not, you may want to consider life insurance even if no one is counting on the money you bring in.

You don’t want your family members having to pick up the tab for your death. So take a hard look at your finances and the money you have saved. If you have enough saved through your various accounts to cover all your expenses when you die, there is simply no reason to waste the money on life insurance.

Life insurance and your age
One of the greatest myths about life insurance is that it is harder to get as you get older. Insurance agents are notorious for hinting that this is true, although they will never come out and say it directly. That is because it isn’t true. If you purchase life insurance when you are young, your premiums will be very low compared to waiting until you are older. That is because the insurance company is betting on you living. If you do happen to die early, then you were a bad investment. However most young people live for a long time, making it a pretty safe bet for the insurance companies.

If you didn’t pick up life insurance when you were young, don’t believe that you can’t get life insurance. Insurance companies will charge you more for your insurance, as you will present a greater risk to the company. However, you should still get approved. The question becomes, can you afford to pay the higher premiums? Once you reach retirement age and are on a fixed income, it will most likely become more difficult to afford the payments, but the ability to qualify for life insurance won’t go down just because of a few extra years under your belt.

Determining your insurance needs
The largest part of choosing a life insurance policy is determining exactly how much you will need to take care of the expenses of your death as well as be sure your family members are taken care of if something does happen to you.

How much debt do you currently have?
All of your debts must be taken into account when you pass away. This includes your mortgage, car payments, and credit card debt. In any policy you take out, you want to be sure you have enough money to cover the costs plus any extra interest that gets added to the loan. For example, if you owe $100,000 on your home plus you have $20,000 left to pay on your car and $10,000 in credit card debt, you will need a minimum of $130,000 to pay off these debts, although you may want to consider adding a little more to be sure any interest is covered.

Does your insurance need to cover income replacement?
If you have a family that counts on your income to survive, you may want to consider adding in enough money onto your life insurance policy to ensure that they don’t lose that income if something unfortunate happens to you.

For example, if you have an income of $50,000 a year, and want to be sure you have enough money to cover 20 years of your income, you would need a minimum of $840,000 to give your family enough money after you are gone. You should also factor inflation into your final calculation. Usually, you can do that by simply adding an extra year of your salary to the final figure.

Will the policy need to cover other future expenses?
On top of your income and any debt, you will also want to cover other future expenses that go above and beyond your salary replacement. Do you have children? If so, you may want to build in a set amount of money for them to go to college someday without needing to take out thousands of dollars of loans in order to get their education.

It’s difficult to predict exactly how much the college tuition will be when your children are ready to head off to school, but you can look at tuition in your area and make an educated guess. Whatever figure you come up with, add it to the total of your policy.

Does your insurance also need to cover others?
There are most likely other people in your life who may need to be insured. As a rule, you only insure people who would constitute a financial loss if they died. The death of a child, while emotionally devastating, doesn’t cause you to lose income. But the death of an income-earning spouse is both emotionally and financially devastating. This financial loss is the perfect reason to purchase life insurance for them as well.

Life insurance is one of the best ways you can secure the future of your family in the event that something happens to you. Everyone wants to be sure their loved ones are safe and secure after they are gone, and life insurance is one of the easiest ways to do that. But, you need to carefully consider what you need to cover in the event of your death so you don’t under- or over-buy on your life insurance. It’s the best way you can be sure your loved ones are taken care of after you are gone, while ensuring that you don’t have to pay too much for that safety net while you are alive.

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