Although there is a small segment of the market where a real estate agent is an employee of a company (usually a builder), the great majority of agents work on commission and are, therefore, considered self-employed. Being self-employed can be a wonderful way to earn a good living, but details like life and health insurance must be handled by the individual rather than the company.
Even though there are various associations out there that offer resources and support for real estate agents, what they offer primarily is advice and discounts on marketing materials and office supplies. When it comes to life or health insurance, the agent is pretty much on their own. Life insurance is a product that can be challenging to purchase because most consumers simply do not understand the industry and its various products.
Certainly, every professional understands the death benefit aspect of life insurance, but very few understand or even consider the living benefits of life insurance. Since there are so many different products available for purchase, and they all offer a needed benefit, how do you know which product or products will best serve your needs?
The Living Benefits of Life Insurance
With almost every life insurance product in the marketplace, there are more benefits to make use of than just the death benefit. These are referred to as “living benefits” and can be used for various financial situations that you can expect to be challenged with during your career as a real estate agent. When discussing living benefits, we typically leave Term insurance out of the conversation.
- Death Benefit
Virtually everyone knows that the death benefit in an insurance policy is meant for certain surviving loved ones and can be used however the beneficiary chooses. In most cases, the death benefit will pay off debt, will be used as living expenses, and pay final expenses left by the insured.
- Accelerated Death Benefit
The accelerated death benefit is typically offered by most insurers as a free rider on the policy. Using this benefit, the policyholder is paid a large percentage of the death benefit if they are diagnosed with certain terminal illnesses. The benefit is paid to the insured to help them deal with the cost of treatment to prolong the life of the insured.
- Cash Value Account
Universal Life and Whole Life policies contain a cash value account that grows over time and earns interest on a tax-deferred basis. With Whole Life and Universal Life insurance, this cash value account grows at a rate that is either predetermined by the insurance carrier or it may be based on the growth in the market. Most of these accounts have a minimum interest floor so that the cash account does not lose value in a down market.
How You can Use The Living Benefits
The living benefits derived from the cash accumulated in Whole Life and Universal Life insurance should be a deciding factor when considering which type of policy to purchase. The accumulated cash in your policy can be accessed for many different reasons:
- Collateral for Policy Loans
The cash value that accumulates in your policy becomes an asset on your balance sheet. Your insurer will allow you to borrow money against the policy using the cash value in it as collateral. You can borrow the funds at any time and for any reason and, you do not have to pay it back. Any unpaid loans will simply be deducted from the death benefit.
This benefit means you have access to cash for:
- Buying a Home
- Invest in a business or commercial property
- Respond to a financial emergency
- Provide supplemental income during retirement
- Savings Plan for College Expenses
Since the cash value in your life insurance is not considered in federal college financial aid calculations, you can use your cash value (via policy loan) to help pay for tuition and housing expenses, but you may also benefit from greater financial aid opportunities, compared to families that have a similar 529 Plan.
- Long-term Care Benefits
Many states now allow life insurers to offer policies that provide long-term care benefits in addition to a death benefit.
- Tax Benefits
Whole Life and Universal Life insurance offer various tax advantages. Your policy will provide tax-deferred growth on cash value accumulation and non-taxed access to cash value up to the policy’s basis. Your death benefit is also distributed on a tax-free basis.
Which Policy Will Work Best for Me?
The type of policy you should purchase should always depend on your needs. If you are just wanting to provide a death benefit as a legacy or funds to pay down debts, then a Term policy will probably be your most affordable choice.
If, however, you are looking for a policy that will provide various living benefits like the ones previously mentioned along with a death benefit, then you should consider a Universal Life product that not only provides many living benefits but is also flexible enough to accommodate the financial changes in your lifetime.
On the other hand, if you’re concerned about lifetime coverage, a guaranteed death benefit, and a guaranteed monthly premium payment amount that will never change, a Whole life product is more likely to meet your needs.
How Much Insurance Do I Need?
Knowing the amount of life insurance you need depends on the many things that are going on in your life. We all understand that our financial needs will change many times during our lifetime because of events like marriage, children, debt, and retirement planning.
If you have life insurance now, who decided on the product and death benefit, you or your agent? Why you purchase life insurance is just as important as how you purchase life insurance.
If you are a DIY individual, you may have gone online and purchased a policy that seemed right for you at the time, but then soon found out that you didn’t buy the right type of policy or the right product.
The best way to determine the amount of insurance to purchase is by completing a life insurance “needs analysis.” This is done by calculating your final expense needs (funeral costs),
outstanding debt, outstanding mortgage, expected costs for children’s college, income required by your surviving family members, and loss of retirement contributions.
You then take the total of these expenses and subtract the amount of your current investments to calculate the actual amount of life insurance you should consider. If you cannot afford to insure for the entire amount, insure for as much as you can comfortably afford and then add to that whenever possible.
Where Can I Get Help?
The best place to get help with purchasing the best insurance as a real estate agent is to connect with an experienced and reputable broker. Using a broker does not cost any additional premium because their commission is paid by the insurance carrier. Purchasing insurance without a broker will not save you money and can actually cost you more.
Most life insurance brokers (represents more than one company) will be contracted with all the major insurance carriers. This means that your needs can be shopped with many companies at once, and then the broker can offer you the best and most affordable solution.
Experienced insurance brokers will perform your needs analysis and then recommend the life insurance product that will best meet your needs. As your broker, they will put your needs ahead of the companies they represent to make certain they deliver a solution that is in your best interest.
Using an insurance broker should not be a one-time event. Since your insurance needs will change over the years, your reputable broker will contact you annually for a policy review and then make suggestions based on events that have taken place over the year.
An experienced broker will also help you navigate the application and underwriting process required by the insurance carrier to help make certain your policy is issued promptly. They will address any underwriting issues, and if necessary, help you to respond to them. Remember, your broker will not be paid until your policy is issued.