John Savignano CPA: What to Consider When Choosing Life Insurance

John Savignano states buying life insurance is one of the most critical choices people make during their lifetime. It can prevent devastating losses should something happen.

Because it’s so essential, there are many options, and not all are good. CPA John Savignano has some solid advice on things to consider when buying life insurance.

“People know they need to deal with this issue, but they keep kicking the can down the road thinking that they need it, but maybe they don’t need it and they’re just running some sort of lottery system in their minds,” the New York-based professional says. “I find that if you bring it to their attention not from a sales perspective, but more of a question: ‘Just think of the position that you’re putting your loved ones in, in the event that someone takes you away. So I’m not saying you need to do it, but as long as you know what the alternatives are.’”

Why Worry About Life Insurance?

The most obvious answer is to protect the people left behind.

“Basically, people buy insurance for many reasons,” says Savignano. “The primary reason is that if a loved one passes away, you want to make sure that the surviving people are able to survive. So from a financial aspect, that is a benefit of having life insurance.”

Savignano knows what he’s talking about. A New York native and St. John’s University graduate, after getting his bachelor’s degree in accounting and a master’s in taxation from Pace University, Savignano became a certified public accountant working for PricewaterhouseCoopers. He’s been a licensed CPA and a member of the New York State Society of Certified Public Accountants and the American Institute of CPAs since 1985. Today, he’s an adjunct professor at Fordham University Graduate School of Business.

Affordability Tops the List, According to John Savignano

Life insurance is an expense that lasts for decades. That’s why one of the first things to consider is affordability. Unfortunately, people fail to think about whether the policy they choose will be affordable throughout their lifetimes.

Buying something that won’t be affordable means coverage will be lost at some point. Life circumstances change, so the policy someone gets today must be something they know they can manage even during rough financial periods.

John Savignano walks his clients through the often-complicated maze of elections and costs.

“As I’m going through people’s financial affairs and learning more about their situations, there’s always an opportunity to present the insurance option,” Savignano says. “I’m actually in a better position than someone selling insurance for a living because they don’t have access to that kind of information.”

Term vs. Whole Life vs. Universal

One option that can affect affordability is term versus whole life or universal insurance. A term policy provides coverage for a set time frame, typically 10 to 30 years. If the person on the policy dies within that time, the policy pays out. It’s a practical choice for the person looking for coverage until a critical milestone in life, like paying off a mortgage.

Whole life insurance is coverage that doesn’t end, explains John Savignano. It costs more but offers more, too. Whole life insurance policies build cash value someone can use to cover emergencies.

Universal life insurance is a hybrid of the two. It offers the cash value benefits that come with whole life insurance but for a limited time, similar to term. Making the right choice depends on the financial goals of the individual. For example, a whole life insurance policy for seniors would be expensive, but a universal one might be more affordable.

“A universal life insurance policy acts like a bank account. So it could be another type of asset investment for you, so if you want to put money away, it works the way a deferred retirement account could put money away,” explains Savignano.

On the other hand, he says, “I see a lot of young people in my area. Most of their money goes to living expenses and paying rent or paying for a mortgage. They’re not really saving for retirement. They’re not saving for a college education. They can buy term insurance. Term insurance is very cheap. Maybe a couple of hundred bucks a year they can buy, especially if you’re young and in good health for a few hundred bucks a year, you can buy yourself a $500,000 policy.”

Coverage Needs

People tend to underestimate how much coverage they need, John Savignano points out. They pull a number out of a hat without considering what their loved ones might face. They might consider a significant debt, like a mortgage, but forget other expensive and long-term needs for survivors.

Underwriting

Underwriting can be a confusing concept. Essentially, it means how much risk there is in issuing a policy. For example, if the covered person smokes cigarettes, that comes with significant health risks. An underwriter will look at that and automatically increase the insurance cost. It also limits this person’s ability to get life insurance at an affordable rate.

The opposite is also true, though. Someone who is in perfect health is what underwriters call “preferred.” As a result, they may get the best rates for life insurance.

Companies have different underwriting criteria, explains Savignano. If one company denies a life insurance policy, it doesn’t mean all of them will. Shopping around with different providers is essential to get the best option.

Conversion Options

People who opt for a term life insurance policy because it’s more affordable may be able to convert it to a whole policy before it expires. This allows them to lock in a lower rate and switch to a permanent policy when it is more affordable.

However, not all term policies offer that option. Before buying term life insurance, shoppers should fully understand their options. It’s easy to choose based on the premium without considering the future.

“There are a lot of different variables, and some of the concepts are difficult,” says Savignano, adding that he breaks it down into “bite-size pieces” so each client can understand.

The Agent and the Insurance Company

Agents can be a source of concern, according to Savignano.

“People who sell insurance in this country have a bad reputation and usually meet with the client or the people who supposedly need insurance. And these brokers are more transaction-oriented and they just want to seal the deal.”

Checking an agent’s references and looking them up online can provide vital information about them.

Life insurance is a long-term contract, and there are no guarantees, so the insurance provider matters. Look for a company that’s been around for years and check their ratings from agencies such as Kroll Bond Rating Agency, Moody’s, and S&P Global Ratings.

“Insurance companies are all rated based on their financial capabilities,” explains Savignano. “You want to be with an insurance company that has a history of paying out claims, and you want to be with an insurance company that’s highly rated A, B, or C, that will be around in 20 years, 25 years when you’re going to submit the claim. It’s hard to predict, but there are agencies that evaluate insurance companies, and you want to be with the top-rated insurance companies, so the top-rated insurance companies are harder to get in.”

Life insurance is a lifeline for those left behind after someone dies. People need it, but they need to make informed decisions before signing on the dotted line.

And that’s precisely why John Savignano is here to help.

“I want to be of value to my clients. I consider myself more of an adviser. The more I know, the better I can help clients and myself.”