What Type of Life Insurance Policy Should You Get

The primary purpose for getting life insurance will always be to protect the people you care about in case something were to happen to you. How much capital would you need in order to pay off debts, support your loved ones, or to take care of all your affairs?

After you understand what priorities you would like to protect through life insurance it is fairly easy to determine the correct amount of coverage.

What Type Of Life Insurance

The next question is what type of coverage will best serve your needs. In order to get the right amount of coverage you also have to make sure that the premiums fit comfortably into your budget.

Term Insurance Benefits

Term insurance is less expensive than whole life insurance, because you are renting the insurance. Your coverage is considered pure insurance in this case, because it doesn’t develop cash value or participate in company dividends.

Instead it allows you to get the right amount of protection for the least expensive premiums available. Term insurance has also developed over the years to offer more comprehensive options. You can get a return-of-premiums policy where you pay more during the life of the policy, but the insurance company refunds all of your premiums at the end of the fixed term.

There are also term policies that allow you to lock in your age and health for the remainder of your life, so that you can have the coverage and premiums locked in for the rest of your life. This is a great and inexpensive way to obtain permanent insurance.

How Long Should You Lock In Your Premiums

The longer you can lock in your premiums the more advantageous it will be in the long run. The insurance company takes into consideration the mortality risk during the level period of the term. If you are 35 and you get a level 20-term policy then the rates will be fixed until you are 55. And because you are locking in the premiums at a younger age, the average risk and rates will be less than if you were to lock in your premiums at 55.

Most people have an insurance need that will last throughout the rest of their lives. If you can permanently lock in a portion of your insurance at a younger age this can save you substantially on premiums. It happens quite often where people will have to apply for new coverage after the fixed rates on their current policy have expired, and because they are now older and have to pay much more in premiums.

Your health is also locked in when you first take the policy out. Many people looking for insurance in their fifties or sixties are dealing with some type of medical condition that makes the cost of life insurance double or triple in cost. The same logic that applies to locking in your age is also good to keep in mind when locking in your health. We don’t know what is going to happen to us, and if we have our insurance locked in then our insurability and premiums will be unaffected by a medical event.

Level Term Insurance

I always recommend getting a level-term policy as opposed to one that will start off lower and increase premiums each and every year. The level term policies allow you to lock in your age and health for the remainder of the term, whereas the increasing-premium policies become more expensive every year based on your new age.

Because term insurance is a less expensive way to get the right amount of protection, I believe that it is the right choice for a large majority of people looking at life insurance.

Cash Value Life Insurance: When To Consider It

First A Word Of Caution About How The Life Insurance Industry Operates

An agent who pushes one company above the others is doing his or her clients a disservice. Every company has its positives and negatives and each company has focused on certain demographics to try to create a competitive edge. There are 17 life insurance companies in the fortune 500 alone. These companies have very similar investment portfolios and conduct business in ways that are more common than not. Eight of these companies are mutual, nine are stock companies, and they all operate in order to make a profit. The most important thing that anybody can do is to have an agent who can help them shop the market for the company that is going to fit their needs best. Somebody that is a smoker with high blood pressure is going to have better options outside of the companies that target nonsmokers without health conditions. Finding the least expensive company on the market for your age and health can save you thousands of dollars.

I used to work for an insurance agency where we only sold a single triple-A-rated-insurance company. When I worked for this agency, my fellow agents and I were especially inculcated with the benefits of this company’s whole life insurance. This situation is not unique.

Captive agencies have managers that groom agents to push one company because they get paid commissions when their agents sell these products. Please don’t assume that life insurance agents are experts on the benefits of different companies and types of insurance plans, because many of them are unaware of the benefits beyond their own company. Instead of consulting their clients and shopping the market they push a single product that doesn’t always match up well. There are far too many people being given advice from agents to consider whole life insurance, because they are trained to present the same products to every client.

When You Are Considering An Insurance Company It Will Always Be Advantageous For Some People And Ill Advised For Others

If you sit down with an agent who goes over a list of benefits about a single insurance company, keep in mind that most benefits are really trade-offs. For instance, if a company is a triple-A rated insurance company than they are probably also more conservative with whom they insure. A triple-A rating is great, but it is really only necessary if you plan on participating in the companies dividends, or in other words buying their whole life insurance. There is no need to pay extra money for the privilege of having a triple-A rated company as many agents insist. A.M. Best considers a company with an A-rating to be in excellent financial health and there are many A-rated companies with less expensive insurance offers if you are not planning on participating in whole life.

When Whole Life Insurance is a Good Idea

For some people, whole life insurance can be a great complement to their financial security. I have sold whole life insurance based on the following benefits.
1) It has a guaranteed return that will consistently build up the cash value in the policy.
2) It gives policyholders permanent insurance so that they are insured throughout their lifetime.
3) It allows them to stop paying premiums after a certain number of years, because the dividends from the company will be enough to keep the policy in force.
4) It allows policyholders to take cash from the policy in the form of a loan, so that you have another option if liquidity is needed.
5) The growth of the policy is tax deferred and tax-free as long as long as the policy is kept in force.

The problem can be that many of these benefits point to life insurance as an asset or investment. Life insurance should always be considered for the death benefit first and foremost. If you have already maxed out both your Roth Ira and 401(k), have at least three months of expenses in accessible savings, and are looking for something else to build up savings then whole-life insurance can be a good option. The point is that whole life insurance is a good choice when you have the ability to max out your qualified retirement funds and are looking to complement your savings with a conservative tie in to your life insurance.

Whole life can be a mistake for a couple of reasons

There are risks when putting your money into whole life insurance. The risks aren’t always clearly explained, because the agents focus on the guaranteed dividends that will grow the cash value every year. However, one significant risk is buying into whole-life insurance, paying the premiums for a number of years, and then not being able to keep up with the premiums down the road. Life insurance companies bank on this happening to a certain percentage of policyholders.
If this occurs you are in danger of losing thousands of dollars in paid premiums without the benefit of accumulating any cash value. When a policy lapses or you can’t keep up with whole life premiums then the insurance company will retain your premiums without you having any cash value built up or any insurance in force.
These whole life polices are structured to have large front end expenses and it will take at least a couple of years before your premiums start to build up cash value. It takes about ten years before the amount of premiums you put into the policy will equal the cash value in the policy.

How Cash Value In Whole Life Insurance Works

The other risk with whole life insurance is not understanding how the cash value in the policy works and taking out too much of it. The cash value in the policy is liquid, but the insurance company will let you take out about 97% of it in order to protect against the policy lapsing. Any cash that is taken out of the policy is loaned from the policy at interest.

Lets assume that you are in the first 20 years of your whole life policy and are taking a loan from the cash value in the policy. The loaned interest rate is 8.0 %, the non-loaned dividend interest rate is 6.85%, and the loaned-dividend interest is rate is 7.9 %. Notice that the insurance company steps up the interest rate on the loaned amount or the amount borrowed from your cash value. This mitigates the cost of the loan, but the loan still creates an ongoing obligation to pay interest. For instance the cost of borrowing here would be 6.95 %.

(The loaned interest rate (8.0 %) + (the non-loaned dividend interest rate (6.85%) – the loaned-dividend interest rate (7.9%)) = cost of borrowing (6.95%).

The cash value in the policy is really a double-edged sword, because it leads to a significant risk that you will not be able to keep up with the premiums. It is practically intended for people who can repay the loan quickly so that the policy continues to develop dividends instead of an obligation to pay interest. It is great for people who aren’t ever tempted to borrow from the policy, because the dividends will compound and eventually be able to cover the cost of annual premiums. When this occurs the risk of lapsing will be negligible. However, this takes quite some time to achieve and it truly depends on how disciplined you can afford to be with the additional cost of these premiums. If you would rather have control of your money up front there is an argument that you can buy term and invest the rest instead of leveraging the insurance companies general fund.

Your Personality Profile And Budget Must Be In Line

I recommend taking a look at both your budget and how much control you want over your money for at least the next ten years if you are considering whole life. Because term insurance can now permanently lock in your age and health in the same manner as whole life insurance, the biggest question is whether or not you want control over investing the difference in premiums. Many people prefer whole life insurance because they don’t have to think about investing the difference; the insurance company does it for them. They can also grow their death benefit by the amount of growth in cash value and act as their own creditor if they ever want to borrow cash from the policy.

A Couple Other Points About Whole Life Insurance

The cash value component in a whole life insurance policy needs to be addressed. The first is that cash value is based on compounding dividends. So the longer you keep the paying premiums the more advantageous it is. The second is that if you go with a reliable insurance company they will usually pay non-guaranteed dividends that are based on the results of an insurance companies investments. This is when rating is important to consider, because you are now participating in these dividends. Also if you have allowed the cash value to grow and take out modest loans from the policy later in life, you will most likely have enough in dividends to keep pace beyond the ongoing obligation of interest. However if you do surrender the policy the gains will be taxed as capital gains and you will have to pay a surrender charge as well. If the policy is in force and you pass away while there are still outstanding loans, the death benefit will be paid out after it covers the cost of the loans that you have taken from the policy.

Term Insurance Vs. Whole Life

I believe the most important factor in all of this is the human element. If you are patient, conservative, and comfortably able to continue paying premiums without the temptation to borrow from the cash-value then you are a good candidate for whole life insurance. The majority of people have fluctuating budgets and circumstances where they are better off with something that locks in their age and health and gives them the opportunity to invest the difference elsewhere.

Missing or Lost Life Insurance Policies

Unfortunately it’s not an uncommon story; someone pays the required premiums on a life insurance policy for years and neglects, or forgets, to give the policy, or any information about the policy, to the intended beneficiary. The insured person passes, the policy documents can’t be found, if the beneficiary even knows about it, and the insurance money is never paid out. And those unpaid life insurance dollars run into the billions!

If you think that this is not happening, and you are the beneficiary on a loved one’s life insurance policy, just ask yourself these few simple questions:

1. Do you know the details of the policy?

2. Do you know the whereabouts of the policy?

3. If something happened today, would you know where to find the details?

If you answered, “no,” to any of these questions you’ve got big gaps in your knowledge which could lead to a real financial tragedy.

Further, if you even suspect that you may be a beneficiary, get the details now. Waiting until it’s too late to talk about it can, in addition to the grief caused by the passing of a loved one, cause severe financial hardship. These subjects, we know, are difficult ones to talk about. But to avoid the difficulties of not knowing, THEY MUSTBE TALKED ABOUT.

If, however, you have lost a loved one and are experiencing the difficulty of not knowing, there are some things that you can do. A few of them follow:

1. Go through your loved one’s financial documents for insurance company dividends or premium notices. Many people keep all their important documents in one place; often in a home office, a bedroom closet, or a safe deposit box at their bank.

2. Scan through their current and past checkbooks. It may be that the last premium is paid is recorded there.

3. Check your loved one’s cell phone contact lists and computer email addresses for the name of an insurance agent.

4. Get in touch with the current and/or previous employer who may have a record of a group policy. If your loved one was retired, group coverage may have been converted to individual coverage.

5. Monitor your loved one’s snail mail for a year. Watch for any correspondence from an insurance company.

6. If your loved one’s passing occurred some years ago, you can also check with unclaimed property office of any state where he/she may have lived. If an insurance company is aware of the passing of a policy holder but is unable to locate the beneficiary, after a period of time it has to turn the proceeds over to the state where policy was issued.

Finding a lost or misplaced life insurance policy can be a daunting task but there are ways… and your patience in searching could prove very rewarding. Also, there are services that will, for a fee, assist you in your search. http://www.LostPolicy.com is one such service. Insurance companies are not only willing to give the beneficiary their rightful due, they are obligated to. But it is the responsibility of survivors to make the required notifications and claim any proceeds.

Understand The Suicide Clause In A Life Insurance Policy

A policy holder who feels like he is down in the dumps would be tempted to take his own life only to leave his loved ones a considerable amount of money from a life insurance policy. Suicide of a family member is one of the most disheartening situations any family can encounter. This incident could also complicate the process of claiming the life insurance benefits. But the question whether an insurance company will grant the insurance benefits to the recipients will be hinge on clauses in the policy. There are instances when a policy’s suicide clause holds back the redemption of the benefits. Sometimes the policy holder does not easily recognize this clause concerning suicide because some policies use languages like “intentional self-destruction” or “death by one’s own hand” to describe the act.

Forms

A suicide clause is just one of the clauses or stipulations that you can find most life insurance policies, while the stipulations may also differ to some extent depending on the state or country. Some insurers include a free look provision that offers the policy owner a considerable period of time to review a policy after it was issued to for the buyer to decide whether he wants to purchase the policy. Incontestability clause prevents the policyholder from annulling the policy after it takes in effect for a definite period of time, except if the policyholder cease from paying the premium.

Purpose

A suicide clause states that policy benefits will not be granted to policyholder’s beneficiaries if he ends his own life within a specific term following the inception of the policy. In circumstances a policyholder passes away within that period covered by the suicide clause, the insurer usually investigate the claim strictly to guarantee that the demise of the policy holder was not a case of suicide.

Benefits

A suicide clause guards an insurer against a circumstance where a policy holder commits suicide with the objective to give his recipients a considerable sum of money from life insurance claims. Considering the fact that contemporary life insurance policies can easily build up a face value of $100,000 or more, the clause can protect the insurer from disbursing such a significant amount of money.

Insurers are not the only one who benefit from suicide clause, even the desperate and emotionally distressed policy holders gains from this clause. For example, if a desperate policy holder learns that their beneficiaries might not get any benefits from their insurance plan if they commit suicide, the person may reconsider his attempt to commit suicide.

Time Frame

A suicide clause usually covers the first two years that the life plan has been in effect. In case the suicide transpired within that period, the insurer will just hand back to the policyholder’s recipients any premiums that have been given to that point. If suicide happened subsequent to the clause period, the life insurance company cannot refuse coverage.