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Types of Life Insurance To Discuss With Your Agent in Austin, TX
With world events catapulting many people into uncertain circumstances, securing your personal and financial assets has never been more important. Many people recognized how flimsy financial security can be when the coronavirus-triggered recession hit the United States in the spring of 2020. In Austin, for example, families and businesses faced natural disasters such as Hurricane Laura and other events that make quality insurance a necessity. Life insurance is something that everyone should consider, including individuals, small businesses, and large companies.
Life insurance provides an affordable way to keep your business and beneficiaries financially stable if you pass away. Many people, however, don't know enough about life insurance and what it entails. If you're considering taking out a life insurance policy and are unsure about what it should cover, it's wise to discuss your needs and concerns with a qualified professional, such as a life insurance broker or agent.
What Is Life Insurance?
A life insurance policy is one in which you pay your insurance company regular premiums in exchange for a lump sum of money to be paid to your chosen beneficiaries upon your death. The amount of your premiums depends on the type of policy you take out, and the amount of money you'd like to be paid out if you pass away.
It's also possible to take out insurance on another person. This can be done if you have an insurable interest in that person. Insurable interest is defined as an economic stake in an object — in this case, a person — that's profitable while that object is functional. If you want to take out life insurance on another person, you have to have some financial interest in their continued existence.
Taking out life insurance on another person is usually done by their business partner, spouse, children, or another close family member. For example, a dependent child can obtain a life insurance policy on their parents if they would be in financial need if their mother or father passed away. Life insurance policies can also be taken out by a company for a CEO or by a creditor to cover a debt if the debtor dies or is incapacitated. Taking out a life insurance policy on another person has to be done with their knowledge and often their signature. People are prohibited by law from taking out an insurance policy on a stranger or casual acquaintance, since insurable interest doesn't exist in these relationships and can't be proven.
What Types of Businesses Should Consider a Life Insurance Policy?
Small businesses
Maybe you're planning to open your dream shop on 11th Street or going into the restaurant business with your college roommate. Life insurance might be the last thing on your mind, but it's certainly important. As a small business owner, you may choose to take out a life insurance policy on yourself. If you pass away, your family may not be able to take on your role in the business, and your partners might not be able to take over for you immediately. Life insurance can temporarily replace your place in the business, at least financially.
CEOs or co-founders
Companies may take out a life insurance policy out on or on behalf of a CEO or other key employees. For example, the CEO of General Electric has two company-provided life insurance plans. Cofounders and business partners can take out life insurance policies on each other, as well. Insurable interest can usually be determined in these situations, and the policy protects the partners from the damage of losing a pivotal figure in their business.
Larger companies
While larger companies might not need life insurance for their employees, they can have a comprehensive plan or policy to attract top talent when they're hiring. Unless your company specializes in insurance, the ins and outs of life insurance policies may not be the forte of your human resources department. An insurance agent or broker can help explain your options and point you toward policies that best suit your business and employees.
Why You Should Consider a Life Insurance Intermediary
A life insurance intermediary, such as a broker or agent, can help you sort through any confusion and guide you to the right policy. There are differences between life insurance agents and brokers, however, so you should know who you're dealing with before you bring one of these professionals on board.
- Life insurance brokers represent individual clients: They can help customers compare quotes and the differences between plans. They also know about different companies and the plans they offer. If an individual is confused about the fine print or circumstances that may affect their eligibility for a certain plan, a broker can explain the nuances. Insurance brokers are legal representatives of their clients.
- A life insurance agent represents a specific company: These individuals are knowledgeable about the policies offered by a particular company. If you're working with a specific insurer and are looking for freelancers who can represent that company, insurance agents are a good choice. Some agents are independent, meaning they can represent multiple companies at once, and some are captive, which means they only represent one company.
How To Choose an Insurance Agent or Broker
There are numerous factors to consider when you're choosing an insurance agent or broker for your business, such as:
- Experience: An experienced insurance agent or broker has a complex knowledge of insurance agencies, the stock market, and policies that suit individuals and professional companies. Experience can often replace a degree, so don't exclusively rely on the formal education of a potential hire. If you are looking at applicants with bachelor's degrees, however, remember to look beyond the big schools like UT at Austin and Texas State. It's also important that an agent is licensed to sell life insurance, which is different from a license to sell other types of policies, such as property insurance.
- A related background: While some experience in the insurance industry is vital, don't be afraid to look into candidates who have a diverse career history, such as a background in economics, banking, finance, mathematics, or a similar field.
- Testimonials: Look for good references, just as you would for any new hire. Check the clients your freelance agent has worked with previously to see if they're similar companies to yours. Talk with others who've used this broker or agent before and discuss their experience.
- Affiliations: Independent agents may not work with companies with easy-to-recognize names, while captive agents may only be able to give you the rates and policies of one company. Be sure to consider both options when making your choice. If you haven't decided which company is best for you, an independent agent who can help you weigh policies from a variety of sources, including smaller agencies may be the best choice. If you prefer a specific insurance company but are unsure about which policy to pick, a captive agent may be a better choice.
Types of Life Insurance Policies an Agent Can Offer
Whole & permanent life insurance
Permanent life insurance is a standard life insurance policy that covers the entirety of an insured person's lifetime. Among the many types of permanent life insurance policies is whole life insurance. This doesn't expire, and it often has both savings and death benefit components. The death benefit is paid to a beneficiary upon the policyholder's death, and the savings can be invested in stocks or mutual funds. A portion of each of your payments funds the savings component of the policy.
If you wish, you can decrease the number or amount of the payments you're making once your savings account grows to a certain point. As long as you continue to pay, this type of life insurance policy remains in place.
Term life insurance
Term life insurance is a good option for people who want coverage for a certain period of time but don't want to continue to make life insurance payments indefinitely. A term life insurance policy is a contracted agreement between the insured and an insurance provider that only lasts for a set number of years. These policies can be in place for 10 or 20 years or until the insured reaches a certain age.
If the insured passes away during the term, the beneficiaries receive a death benefit from the insurance company. However, once the term ends, the insured person and their beneficiaries receive nothing. A life insurance broker or agent may recommend this type of policy if an individual is looking for a simple and affordable life insurance option for a set number of years.
Guaranteed universal life insurance
Guaranteed universal life insurance is similar to term life insurance and whole life insurance put together. With this policy, you make continuous payments to guarantee a death benefit for your beneficiaries. This option provides the stability of permanent life insurance with the flexibility of a term policy.
Like whole life insurance, this plan can last your entire life. There isn't a savings aspect, though, so your payments are only counted toward the death benefit.
The death benefit doesn't decrease while you make payments, but if you stop paying, there isn't a savings aspect or anything else to show for your years of payments. In this way, the policy is similar to term life insurance.
Indexed universal life insurance
Index universal life insurance is another type of permanent policy. Like other permanent life insurance policies, index universal life insurance has a savings component that increases as you make payments. With this type of policy, the interest rate in the cash value account is dependent on a specific market index, such as the NASDAQ or S&P 500. Other permanent life insurance policies pay a fixed interest rate.
It's important to note that with an index universal policy, the cash value account doesn't decrease if the market index falls. However, there's usually a limit on the interest rate on your savings account. If you're looking for a life insurance policy that helps you invest without too much risk, your agent may steer you in this direction.
Discussing Different Policies With Your Agent
Life insurance policies can be complex, so going it alone isn't advisable when you're comparing options. In Austin, there were 2,044 licensed insurers as of 2017. It's almost impossible to identify all of these companies, determine which offer life insurance, and then choose which type of coverage is best for you. This is where an agent or broker comes in. Your agent can meet with you and have in-depth conversation about your financial situation and what policies you should consider. An agent has a thorough knowledge of the policies available from local companies, as well as market volatility and interest rates. Using an independent life insurance agent gives you the advantage of an unbiased perspective from a seasoned professional.